A Complete Crap Shoot

As the market opened my brokerage summarized the "news":

* Stocks open flat after Obama speech, data
* Durable goods orders climb while jobless claims dip
* Ford posts first full-year net profit since 2005
* AT&T earnings up 26 percent, driven by wireless
* P&G, Colgate top expectations as consumers spend more


With such "news" the market dropped 48 points. Oversold, with hesitancy, with fear, and struggles at clear support lines.

And the chartists reported: JANUARY ROTATION OUT OF EMERGING MARKETS AND BASIC MATERIALS INTO CONSUMER STAPLES AND HEALTCHARE SHOWS MOVE AWAY FROM RISK AND TOWARD SAFETY -- TECHNOLOGY IS FALLING HARD TODAY AND IS PULLING REST OF MARKET LOWER -- DAILY EMA LINES TURN NEGATIVE AND WEEKLIES WEAKEN -- THAT'S INDICATIVE OF AN INTERMEDIATE CORRECTION OF AT LEAST 10%

After dual profits on 1/27 we did not provide a new signal yesterday because of our own concern about the oversold conditions, and the lower volume light whipsaw. And whipsaw we saw.

Before 2.30 p.m. the market moved from a theoretical high of 10,298 to a low of 10,005. And rebounded again. Veteran traders of OEX, those studying at Level 3 or Advanced Mentoring, could easily have take advantage of these swings. Any OEX ATM option could have been played, put or call, buying below prior day close (call) or around support lines (puts). During the next 45 minutes the market moved 100 points to the upside.

Several months ago I shared that a long term subscriber Johnny K had been diagnosed with large brain tumors that were likely without cure, and that he had only a few months to live.
Johnny shared this with me and we became even better friends (as I am with many subscribers) and I began calling Johnny "just to talk" every week.
Yesterday morning Johnny's daughter wrote to share that Dad had been rushed to the hospital, after his first round of radiation and chemotherapy had just completed, and that the surgeons were to work again, with a bad prognosis.

I have learned so much from Johnny. He is a kind and generous soul that has the character of love, and has truly learned in his life that "we do not know reality", but only know the reality we know.
He understood my teaching "a rock is not hard" and "there is no black and white" from his years of spiritual study, and traded very well, truly enjoying it.

As I write this Johnny is under the knife.

Please think of him, and think of the Haitians, when you think about our government of "boys" fighting to win. I smiled so much during Obama's speech as the GOP stayed seated. Kids in a sandbox.
And good people like Johnny, who is loved by so many, are forgotten.


The market downturn yesterday was severe, with a bottom test right near 10,000 before 12 noon. Bears believe this is the start of a massive 10% overall sell off; bulls believe we are simply consolidating, and the market could now rise 586 points, in segments, from whatever it's lowest low.

Bull or Bear on a Friday? Continued sell off, or upside. My logistician answer: complete crap shoot. But the bulls are trying.

The Market Already Knows What It Wants To Do

The news of the day ,the summary:
CHINA LEADS GLOBAL RETREAT -- INTERMARKET REVERSALS RAISE WARNING FLAGS -- MARKET IS OVERSOLD SHORT-TERM -- BUT WEEKLY MACD LINES HAVE TURNED NEGATIVE -- THAT INCREASES ODDS FOR A 10% CORRECTION


A correction may well be in that offing, as the day ended with no gains to the market, and increasing gains for a larger and deeper downside.

“There is only one side of the market and it is not the bull side of the bear side, but the right side.” – Jesse Livermore, early 20th century stock trader and speculator.

One of the primary things I teach, the hardest, is this. It does not matter "who is right" or "that you are right" or that "the market should have done."
It's betting the side of the move, simply put, and being on the right side of the bias.
What YOU think, what the NEWS says, or worst, the talking heads, is just an opinion. The market already knows what it wants to do.

This is the hardest lesson there is to learn.

Yesterday we saw initial hesitancy, allowing any new buys to the call OEBBE at 1.70, selling to 2.30, but again even on upside OTM options remained low volume. We have an open hedge to the put, and a new buy to the call. TAKE TIGHT PROFITS. This is a very very nervous market.

__________
President Barack Obama delivers his State of the Union address, Geithner testifies about AIG, and Boeing, UAL, Norfolk Southern and Caterpillar report earnings.

Get Ready

Get ready? FOMC Meeting (2 days).....will interest rates stay low, and more importantly, will the FEDS begin discussing increases to the rates.
Here's how chartists see it:
ELLIOTT WAVE COUNT FOR THE S&P 500 - RELATIVE STRENGTH IN DEFENSIVE SECTORS - MEDIUM-TERM UPTRENDS REMAIN IN FORCE - LONG-TERM WEAKNESS IN FINANCE - COMMODITIES LIKELY TO FOLLOW STOCKS - XLE HITS LONG-TERM RESISTANCE ZONE

Last week showed a dramatic correction in the market, a consolidation that has been coming for weeks. We’ve noted the OEX struggling to make new highs with the Dow. The market is classically oversold, and a correction has been evident. The Dow projections we provide each day on our website have shown the moves over a two week period.

It is interesting, thusly, to listen and read the talking heads telling us that this correction is about “Obama’s economic plan, the tea party win in Mass, or Haiti triggered fear." The key is that the consolidation was already evident. It is possible now for a retracement, or a “false bottom.” It’s likely the market now show downside for 7 market days.

From a market perspective this is a good time if the consolidation holds at 10,160 or up begins a sizeable upside, which we think could then return to the 10,550 Fib area. In today’s world we can only predict by the day. Who would have thought of Haiti ten days ago?

From our Dow projections yesterday:

"10,117-10,260- Support struggle areas

We may see struggles to regain ground to these upper levels as part of retracement

10,309 to 10,397-Support"
The market held at theoretical Dow 10,296 by 3 p.m.

The Market Moved

The market moved so dramatically that we re-calculated the OEX and twittered out twice during the trading day. By 1.30 p.m. the theoretical Dow had hit 10,335, near what could be a support area, and a turn around, to as high as 10,870. When a market is down 240 points for the day we believe we've entered a true bull market. We have had down days with responding up days, and key support areas have held.

Many of our longer term traders had held our put, as we gave a "top sell," a stop loss date of Friday, and had Dow projections showing these numbers. These traders returned as much as 100% on their investment.

We're on the hedge side only now, with a new or dual buy to the call as an open signal, and are going to move the stop loss out

This week I've sent you Dow Charts, and it would be interesting to review now. You should.

We believe the SPX has a core support at 1100.

It's time for some philosophy:

January ends the “best three-month span” of the market, historically.
What this really means is that the market historically does little the rest of the year

The market can stay irrational longer than you can stay solvent – John Maynard Keynes, British economist

What this really means is that you are not right

The human ego does not like a vacuum-Johnny K.

This from our wise trader, Johnny K, suffering with brain tumors and talking with me regularly. I love this man, and the simplicity in which he understands there is no black and white.
While we spoke Sunday he said casually "the human ego does not like a vacuum." This goes with Floyd's "we are always approaching a drama, within a drama, or recovering from one."

The Crowd

OEBNB FEB 2010 510.0000 PUT, which looked a loser just yesterday, and we had bought at 4.00 range hit highs of 6.90. Although there is more downside possible we consider this position sold.
And the market fell to a theoretical Dow of 10,477, certainly a bearish consolidation, but not yet a proven downside unless we see a much stronger sell off, that doesn't "soften" during the 3.00 p.m. hour.....until it finally did, and then moved right back to support lines, showing a bullish end.


“An economist is someone who sees something happen, and then wonders if it would work in theory." – Ronald Reagan

“The CROWD is always wrong at market turning points but often times right once a trend sets in. The reason many market fighters go broke is they believe the CROWD is always wrong. There is nothing further from the truth. Unless volatility is extremely low or very high one should think twice before betting against the CROWD." – Shawn Andrew

Lastly, I do not believe the market fall yesterday had anything to do with the Republican upset in Mass, but was "ready" for a consolidation.

Consolidation on Good Earnings

Consolidation took place last Friday on JPMorgan's massively good earnings not hitting expectations, the trigger to allow a 144 decline by 1.30 p.m right back to the Fib 10,550 line.

Study these number carefully. They are the theoretical Dow tops and bottoms on Friday: 10,750 to 10,521 low
As you study our Dow projections we are trading within a "Fibonnaci range" with the bears swearing the end is near, but slowing their pace, and the bulls insistent that this historic run up is simply the sign of economics working, and that "the worst is over."

For traders that owned puts we finally hit profitability, but hit stop loss on the call. It was a very hard week to make money last week, as the volatility range was even tighter.

So, what's next? Option premium prices are overpriced. The steadiness of the market within these ranges reflects historically on what will be a "large move," and it's a cat's game on whether up or down.

We'll open the week very cautiously, following the count of the market, with an OTM put play. We will also show as a buy a more ATM call, and note to traders that how futures open will help define the tenure of the market. There are many earnings reports coming out. Unless we see a grand slam sell off, it's very likely we'll have the opportunity for fast trades on both issues.

Rules for Success

Trader JS just inquired about why we do not mention or define the many changes to VIX, the fear and greed indicator. JS pointed out VIX just had a sell signal.

In actuality VIX is below 20, a sign of downside and complacency, yet is slowly rising. We believe VIX to be a lagging indicator that points out the behavior and mood of the past, and although good to monitor, it's not "law."
We are interested in only a 14 day period. Right now I see the "complacency" VIX identifies as the classic struggle at a major Fibonnaci support and resistance area.

Here's a few more Floydian rules for success:

1. Never read a business magazine
2. Never watch any TV about the market, except Bloomberg, Barron's, Wall Street Journal, IBD. Only valuable papers
3. If interested in truly learning the market consider any of the CORE BOOK Library we recommend on the home page.
4. If an analyst writes it or says it on TV or magazines remember that these are NOT stock technicians, but TV Personalities, just like fat old Rush the fearmonger.

The more I learned to have "no noise" and to NOT read or listen to outside influences and to recognize that things can be seen from different perspectives.

There is no doubt the FEDS will raise interest rates. No matter where the beige book Wednesday or how the December jobs reported, we don't think the FEDS have any opportunity nor would take the risk now, to raise rates.

Watch where we are. Right at Fib tops. If the market can move higher and hold, the bulls may have the upper hand. But a sell off is almost too obvious from Tuesday's plunge (only for a time). And the market reversed the downside. It's two equally matched teams.

We are in "no man's land" with no volume, no volatility, and a waiting game. If I see a continued flatness in lower priced options I may begin to make higher risk recommendations to in the money options. Yesterday's climb at 3 p.m. showed the resiliency, and the Fibonnaci top at 10,747 was hit. The market remains at a turning point.

The Market is Ripe for Consolidation

What a difference a day makes. The constant struggles up over the past few weeks, always in a mildly bullish pattern, had to leave to some consolidation.

By 2.30 p.m. the market had yet again returned to our strong support/resistance area at 10,528, hovering at 10,550 actual for hours. Our open Feb495 Put was very profitable yesterday to new traders, and came back to break even for those holding this as a hedge for a longer time period.
We'll continue to hold the open hedge put, and watch. What "triggered" the market downturn yesterday was China, and Treasuries rising on concern the economic recovery will slow as the governments withdraw stimulus.

At a Fibonnacci retracement the market is ripe for some short term consolidation, but we think will return to upside for the short term. We're betting that Obama and Global economies will add to the stimulus, as they first wanted to do, and we could have upheaval and massive whipsaw in the market, but that's a way off. Remember, we are only interested in the 14 day period we're in, and the trend right now.

What we found interesting is that even the 3 p.m. hour did not take the market much down. We think consolidation is waiting to happen, and will recommend calls for the risk oriented trading today. Something is "up" from the trade range we've seen, even in our deepest consolidation over days.

And the resurgence at day end to only a minor downside leaves the count to the call.

A Profit Day

January Expiration Week Horrible since 1999, Dow down big 8 of last 11 - that's the history.

But it was profit day for OEX yesterday. Traders sold open inventory to as high as 3.60. As a day trade many traded it as low as 2.45 to 3.60 within two hours of trading.

The persistent drop in VIX, the volatility index, reflects the collapse in day to day volatility, the key input into options prices. In fact, the option index that VIX tracks, our OEX, still appear overpriced for what their strike points are.

Remember that institutional traders are using OEX options as hedges on large blocks of stock buys, either puts or calls, and the day to day trader (us) is influenced right now by the overall lack of volatility. All of this has occurred because we have come off of extremes, a blast of upswing over a 6 month period that astounded the world, and had many questioning the soundness of the move.

As if any move in the market is really sound, as we have discovered, much of the market of the past ten years has not even been "real," with betting on cash derivatives that together were more than all the printed money in the world.

This is also a week of earnings. Study to see earnings reports this week from Alcoa to JP Morgan. Volatility may begin.

NOTHING IS EXACT, including the numbers we give you to buy and sell at. Several new subscribers have written recently saying something was not available at the price we specify, to either buy or sell. It is important subscribers understand that we cannot all buy and sell at the exact same price. We provide "ranges". For example, if 22% below your first buy is 2.50, you should buy NEAR that number, if you cannot get that exact number.

So a reminder for those of you that are analytical and want certainty, you won't find it options. Everything happens in ranges.

And we saw a breadth of movement yesterday. Decisions are being made.

One Determined Person

When stocks hit a years high in December, as they did in 09, good things often follow in January, according to more than 80 years of market history.

The most brutalized stocks did the doubling, and carried the day for 2009. It will be much harder to repeat in 2010. We are seeing this in the struggle, in Floyd being the "broken record" of where the market is caught and where it can go. We have dual positions. Simply sit on your hands, something quite hard to do, and wait this out. The turns will be interesting, as will the tops and bottoms, both of which will occur.

“One determined person can make a significant difference; a small group of determined people can change the course of history." – Sonia Johnson, American feminist and activist

A Trend That Disturbs...

I feel like a broken record. The Dow needs a consolidation and should consolidate from going to a 9250 low, and returning to a 10,746-10,800 high.

Or, simply reverse my statement. This is a market that boosted up Monday, in our "important test week," and has since inched up slightly each day, held it's own but now struggles just above 10,550 again.
By 2 p.m. the market had hit theoretical Dow tops of 10,635.

No chart will show us at this point. It's a waiting game for what "triggers" upside or "downside." We do not believe the market is ready for "free-fall," merely a consolidation, around new highs, uncertain which will come first.


OF NOTE:
We just returned 42% in 3 days on call options on coal in our Blue Chip service (www.bluechipoptions.com)



A trend that disturbs us for the entire market is that we are all staying put. In prior recessions, and with job advancements, there were a high degree of population mobility. This brought money in many directions. This is a slowing migration, and will affect real estate, and shows what the lack of jobs means, and that the Wall Street "happies" have not yet hit "Main Street."

Financial ETF Exceeds 50-day Average

"FINANCIAL ETF EXCEEDS 50-DAY AVERAGE -- SO DO SEVERAL BIG BANKS AND BROKERS -- HARTFOLD FINANCIAL IS DAY'S FINANCIAL LEADER"
These were the bullet points from Chartist John Murphy yesterday, as we saw the prior day upside NOT hold, but begin to deteriorate to the "deciding line" at 10,550.

We have new Advanced Mentoring clients I did not bother emailing with today about the market, because it was another day of flat line trade range at a major support and resistance area on the Dow.

And in our Dow projections this juncture decides the momentum of the market, and the early January strength or weakness.

We continue to hold the put, and did not take entry to the call, seeing light futures.

As Goes January So Goes the Year

The second trading day of the year, Dow up 12 of last 16, historically. "As goes January, so goes the year"....good or bad stock performance can set the tone for the months that follow, and America WANTS the market to do well, and wants its retirement accounts refilled.
This is good optimism and we hope it breaks a pattern

XEKAC JAN 2010 515.0000 CALL, however, was not available on the run up, and we missed the trade. Of interest, the option went up only slightly from the run up buy in the morning. With a strong count to the call, we'll continue call recommendations.

Of Note: Bernanke has spoken of rising interest rates....just started talking, so expect this to be more serious in coming months.

Note the market held at 10,650 (right in our Dow projections) most of Monday. There is a struggle the 10,746 and how this week fares will show us.

It's likely to have an upside day, on any good news, and the bears remain on good footing themselves.

Note the dollar is now hitting resistance, and Gold is hitting a major support line. If the dollar moves exponentially up past resistance a breakout to the USD could occur.

However, GLD gets "play" these days and is the talk against inflation, this all plays on the optimism, and hesitancy in the market.

Most indices rose with rising volumes on the exchanges.

120 Points down

The market closed the last day of 2009 down 120 points, breaking a pattern around 10,550 which had been acting for over 19 days as strong resistance.

Volume on the exchanges, and in option trading has been very light. Mark Twain once said, "History doesn't repeat itself, it rhymes" and we'll be talking about this, and the set of historical events that now influence how 2010 will perform.
We suspect the first three trading days this week will have the most volatility, with potential downswing consolidation and upswing to new buys. The problem is: which will come first?

The Dow pnf charts show us little, as we've shown little movement, and the mood of this market is petulant at best.

Using January expiry we'll trade a few days on what we think will be a swing, on higher volume.

2009 was the best first trading day of the year since 2003 that was up: Dow up 2.9%, S&P up 3.2%, and NASDAQ up 3.5%....Second trading day of the year, Dow up 12 of last 16.