May655P Hit Profits

The Dow moved to a high, again, of 13,050, and a low of 12,820 yesterday. The May655P hit profits at 14.20. Many emails, from many subscribers, should help us all:


1. I'd love to hear your comments with regards to the following statements made today in the news :

"Stocks reversed early losses to trade modestly higher Tuesday, as investors monitored the movements of record-high oil prices but still laid bets that the economy and companies are in recovery mode."

Ryan Detrick, senior technical strategist at Schaeffer's Investment Research, said it is a good sign that stock traders started buying back in again when the Standard & Poor's briefly dipped below the technically significant 1,400 mark.
"We had some negative news this morning, and we've shaken it off. It's encouraging," Detrick said.
"I think overall, the strength in stocks right now is on fairly firm footing," said JPMorgan equities analyst Thomas J. Lee...."The credit markets keep showing increased appetite for risk".... "In some ways, first-quarter earnings are yesterday's news," Lee said.

Huge quarterly losses from three major players in the financial and homebuilding industries initially sparked some stock selling Tuesday, but those dips were soon met by bargain-hunters, who are betting that those sectors are a good buy right now given their low prices.

3PM - THE BULLS ARE OUT!..."All ten of the economic sectors are in positive territory for the first time this session."

Are you still sticking with the following predictions? And is this supposed to happen by the time we exercise out stop loss?

Floyd - “12,660 first strong bottom, leading to a potential bottom of 12,540
There is also a distinct possibility of a softer bottom at 12,760."

2. “Nice move this morning and yesterday. I would have never been able to have the faith and discipline I did to hold out in this put before. It took a long road to get to this point in my trading career. I just made back all my loss on XAU and then some. I figure it would take me a month of so of small gains to get back to break even. It is almost like we have some unfair knowledge that Jim Cramer does not and all the other "professionals" on CNBC don't have.
I did modify the trade a little, let me know if it was flawed. My 2nd buy at the top around 13100 I bought a more in the money option the 665 put as opposed to the 655 puts I was holding inventory on. I made up ground very quick and closed out this morning at a 50% profit, 1 of my 655 contracts sold at $14 and am my last 2 for $14. Buying the higher option was a wise move this time, but want to make sure it is something you see as being ok to do. I only did it because it appeared we were at an extreme level and wanted to take advantage of the downside once it started. Anyway, thanks for the guidance.”

3. “Floyd, I am just a novice at trading so I am trying to get my arms around what the market did today. Did we have the complete reversal because the Federal Govt reduced the restrictions on Fannie and Freddie enabling them to potentially make more bad loans and lose MORE money? And that was
considered good news?

I am going to have to stop loss till the 9th. My "you know what" is puckering just a bit now : )

I guess if I wanted security I would be in T-bills. Kind Regards, RC"

4. “Yeah, I got overconfident as I made $18k in just one trade on Wednesday, but I didn't sell it the 640put cos I thought it was gonna go lower !!! So no profit =(. Thanks very much for your help Floyd, I know I put myself in this mess, but now I need to get out. Thanks Floyd, your prediction that it will go down is true =).

“I really need your advice and help today. Can you please from your vast experience suggest a price for me to sell today my following puts:


1. 640 May Put(bought @$7.00), bought last Wednesday

2. 650 May Put(bought @15.60), bought last Thursday

The longer I hold it, is it the longer the options decrease in value ? As last time I could sell them for around $8.00 of DOW of 12,850. I see in the ThinkOrSwim platform that this price has reduced now. Why is that ? Now if I want to get $7.00 the DOW has to drop to like 12,750. Hope to hear back from you soon before market opens thanks very much Floyd. Regards,
D”


5. “Hey Floyd, Got in May655p @ $11.50 on Thur sold this morning @ $14.00. Got in again in the last half hour @ $7.30 and sold @ $7.90.
Thanks again, D”

The answers are simple:

1. There is little good news, but the bulls are trying to hold the market up. The risk increases by the day, and the market count bias is now 0. This means neither put or call show strength, despite what talking heads say, despite what a chartist will interpret. No trades will show strength until a true move takes place that "identifies" strength.

2. The talking heads are just that. Remember, these are the same boys that bankrupted Bear Stearns.

3. Some of our traders above obviously don't yet understand even the basics of trading options. Are you one of them? Looking for a signal without knowledge of how to trade?

Last week the FEDS gave us the 7th rate cut in as many months, and the easy money policies continued. This time Bernanke clarified, "this might be the end", and it's important to watch this.

The Central bank is hopefully now more concerned about inflation. Concerns over our housing downturn and credit disaster has taken priority to the FEDS, and the incessant babbles about "in recession". In the 1970's Jimmy Carter was labeled the "worst President" only because he had inherited the easy money and weak dollar policies of prior administrations. As always, the American people stupidly believed Carter was the culprit, when in actuality it was the easy money of the past that created the situation that he and the Reserve Chairman Burns had to deal with.

Former President Clinton led during a stock market bubble, and wisely used the capital to pay down the prior administrations (Bush Idiot #1) excessive spending; however, Clinton did little to control the interest rate games, and allowed the great American hero, Bubbles Greenspan, to push for creative financing, and even condone "unique methods to sponsor American home ownership".

Along came Bushy idiot #2, who had never run a business successfully, and was determined to avenge his Father's Middle East fate, we used a terror attack without any logic begin to "build democracy" in a region at war for years. When this occurred, the free money began, and we printed dollars. Remember, Communist China and other foreign countries buy over 51% of our Treasury bills. The "oil strategy" failed (get Iraq pipeline), but the lobbyist efforts by the oil companies, Halliburton, et al brought wealth to many. Exactly what was planned.

Halliburton, who was never bid out on any contracts, now has their core corporate offices in Dubai. Have we said enough?
How are we doing in Afghanistan, where the terror began. Opium sales have doubled, the Taliban are back, and anyone remember Osama Bin Laden?
The rants above lead to what now must occur: The FEDS will have to stop the interest rate games IN CASE we will truly need to lower rates again.
The tax rebates are out. The economy will now burst to the upside, say the stupid, and even have pointed out that the recent runs above 13,100 were led by the tax rebates.