Tuesday, June 30, 2009

The Plunge Protection Team

For those of you that do not know of PPT, let me introduce you. The Plunge Protection Team are the institutional investors that always struggle to hold or build the market, to "prop it up." Sure enough, the boys were in action yesterday while Bernie went to jail and they promptly led the market up in "window dressing" for the end of the second quarter so that by early afternoon the Dow had topped at 8533, 8573 on the "theoretical Dow."

This is a classic support line that has turned to resistance and we saw the market struggle here for hours, simply barely moving.

Many new subscribers ask: Should I buy both positions, call and put, when you offer them?

The answer is this: profits in option trading take place by "the sum of the parts." We've had some great daily successes on trades for over 21 days now, with only one stop loss, and it's important to always sometimes lose money.

Huh?

That's right. Not all signals will be profitable, but played right, with the "sum of parts" the majority will be, and with profits to offset any losses. This is why we are so strict in our use of # of days stop loss. Remember, we NEVER hold a position longer than 4 days.

Our stop loss method is simple: The day after you buy the option is day #1. Count 4 days out and sell, no matter what. If you make a larger second buy to the option, the day you buy is recalculated to the morning of the next day, and 4 days out from there.

We find the market typically has enough retracement and whipsaw within this time period to allow profitability.

It's the end of the month. Sell off for institutional investors, or prop up for balance sheets. It's been an unusual quarter, in that most institutional investors are those that have moved the market UP so dramatically, after waiting for consolidations to buy in that never occurred until just recently. This is a week filled with data, study your economic calendars carefully, and this data can act as event trigger, as it has been, to create action in the market.

But make note that it's a shortened trading Holiday week, and that the volume and VIX have both been declining. Declining VIX means less FEAR, but it also means less volatility, and we believe after a bottom test we can have much more euphoric upside.

Yesterday was a great example of an "easy buy to the position." We recommended a new buy on OXBGH July 440 at a best buy below prior day close, and the option was available for as low as 3.20 within 45 minutes of opening.

It could have sold by noon, and did for many traders, to highs of 4.30 to 4.60 by 1.30 p.m. for up to a 44% return in hours.

We continue to hold the July 415 Put as our hedge.

Thanks to subscriber Cheryl, who helped find the URL link for the great article recommended yesterday about Goldman Sachs. You must read this article to understand Bernie, Paulson, and all the slime that are in cahoots.
Here's the link to the GS article:

http://www.scribd.com/doc/16763183/TaibbiGoldmanSachs


Unemployment rates are a wonder. And America continues to "believe" what is told us.

The real figure might be anywhere between 15% & 30% if you take into account the cuts in worked hours and the cuts in pay rates.

If I used to get 25 $/h on a 40 hours per week basis and on my new job I'm getting $20 for no more than 30h I guess I'm 40% unemployed or underemployed.

Add those who just gave up altogether ... and it might not be that good.

Many large corporations fill in the gaps in employment by using contract personnel companies. Those are some of the first jobs to be cut when business is strained. Nowadays some very large corporations are wholesale terminating contractors.

This doesn't show up on unemployment data for those corporations. The contract people just get reassigned and pushed down the rungs into lower paying jobs.

As unemployment figures come out this week, assumed to be "positive" because they aren't worse, recognize within the upswing we've experienced in the market that the job market has worsened dramatically. I smile at the false facts of "employment," noting that over 71% of responding corporations have cut employee wages since January 09 an average of 23.1%

So here's a few other "facts", perhaps even more relevant:

Stink free underwear has been invented for astronauts.

46% of six to nine year old girls wear lipstick or lip gloss.


And from Level 3 subscriber NL from Israel:

"Hi,
I've noticed how helpful volume is in looking
at market behavior.
e.g on the 15 min chart of SPY I can clearly
see volume falling off while the chart rises.
In my thinkorswim charts I have set the volume
to be colored green bars for ascending prices
and red for descending ones, and I could see
that the green ones are generally falling while the red ones
stay the same and not low.
Therefore I bought puts on the SPY about an hour or two ago
also based on a head and shoulder formation visible in the last
2 months or so. It looks like today's resistance is where
the right shoulder is at, and where the price has been during
the last few hours.
Now I also read your email for today and saw that you have
also a bearish outlook so I was glad this confirmed my guess.
What do you think?
"

Consolidation should take place to our Dow low projections around any economic data, and quarterly earnings will begin to come out. All is not so rosy. Trader NL is right with us!

Monday, June 29, 2009

Are You More Confident?

The last day of the second quarter has been bearish for the Dow, down 13 of the last 17 years. Institutional investors will be pumping up, or selling off portfolios to try to show a good quarter.

Savings rose in May to 6.9%, a huge change for the American people, and sadly, not good for the economy, as it stops spending :)

The S&P 500 closed below its 200 day moving average last Monday and Tuesday, to Floyd an ominous sign of future market bias. As experienced traders with me know I believe in simple numbers:

*The high/low/open/close of a stock, option, or index posted in a historical pattern (as in a supply and demand point and figure chart, which takes out noise)

*How the market (Dow or SPX or OEX) will perform over the next 14 to 21 day period.

*Use of the moving average and bullish percentages in point and figure charting to see "how things hold up." Last Wednesday and Thursday, for example, the S &P 500 did climb back above its 200 day moving average, but the hesitancy remained clear through the week. Breaking a 200 day moving average typically means signs of a larger sell off.

Many traders have asked me how I feel about our economy, or the market in general. What my "predictions are":

1. We need more industrialization in this country, to "make stuff", to create jobs and move products. We have become a nation of consumers of products we buy from other countries, not because of evil corporations going offshore, but because we all want to "buy at a bargain."

2. Obama's "flow the money" plan is sound. The debacle is much greater than we realize, and further reaching. However, the next corruption will be around the end of "journalism" and "newsbite babbles taking over," instead of the exposing of corruption. The next derivative bubble is already being set up, in "carbon credits", by the boys on Wall Street.

3. We're in crappy shape and it's not really better at all. But, it's not worse.

4. No one knows when it will "really get better." It's all babble, educated or not. The market precedes the general economy in any "emotional direction." This should say it all.

At OEX Options Floyd's job is to teach us what are false facts that influence behavior, and emotion. Here's a perfect example: "Americans Save More, Amid Rising Confidence" is the headline in Saturdays' edition of The Wall Street Journal. "U.S. consumers are saving more of their incomes than any time since 1993 - a major shift towards frugality that's expected to be one of the last effects of this deep and lengthy recession." So far, so good, but what they really said is "Americans are saving more because they are scared SHITLESS." The Journal goes on to say "consumer sentiment has been rising for 6 straight months. " Again true, but not noting it had hit its lowest lows in years at Dow 6200. Much of what we are seeing is the stimulus dollars returning to Americans, and Americans NOT spending out of FEAR, and because they are scared "shitless." Of course, sentiment is better. We are a nation of hope.

Read alone "Americans Save more, Amid Rising Confidence" is fully true, but misleading, as the reasons we are saving, and what our "rising confidence really is" are undefined.

Are you more confident?

To help any educated reader gain true perspective on the financial debacle and WHO really caused it, I suggest studying the following article, written by Matt Taibbi, who I consider one of the finest "exposing" journalists in our country. Matt's basic "lack of respect" and "questioning of facts" helps us see beyond the mirrored glass "they" angle at us.

"The Wall Street Bubble Mafia"
How Goldman Sachs took over Washington by engineering every major market manipulation since the Great Depression. By Matt Taibbi-Rolling Stone Magazine 7/9/09 issue.

This is a fascinating read.

Friday, June 26, 2009

Buying Against The Trend

The market opened with negative futures, and a nice drop down. First, let's teach a bit. Our new trade, July 415 Call, was available at best buy, as low as 14.30 in early trading, and experienced traders bought in, to sell as high as 18.30 by 1.45 p.m. in the afternoon, near our top sell of 19.40. This was a perfect example of buying "against the trend," on a no bias count, and profiting hugely.

Other traders had sold the July 415 Put to 9.30 profitably the day before, but for traders that had held for higher profits a larger second buy would have been made yesterday on this position. With a new buy, the # of days begins again the following day, and using our 4 day stop loss, we'd now hold this trade through Wednesday of next week.

Traders that profited well yesterday would have recalculated the Dow or the OEX at least once or twice during the day. As an example, the Dow hit a recalculated drop and a new r1 of 8440 in the afternoon.

And from a trader doing this on the OEX:

Hi Floyd,

I just did a recalculation on OEX using high 430 and low 419 and got the R1 at 427.69 and R2 at 434.35 and since the market has now dropped from the high 430 to 428 so and trading in between R1 and R2, does it mean R1 is now a support level? Because resistance becomes Support once it was broken up?

Thanks
Ken

The answer to Ken was yes.

Support and resistance lines, simply put, are historical areas where the stock, option, or market has "stopped before." Point and Figure charts show the clearest view of supply and demand, which regulates the oversold or overbought characteristics of the market. The market is always moving to, or is at, an overbought or oversold condition.

When a downtrend reverses it means the market has hit a support line that held, and it begins to move UP. As it does (stock, market, or option) it hits various resistance lines where historically the market had "held, hesitated, or crossed" before.

Many of our subscribers question me when I write "support now becomes resistance"; this means the role has reversed. For example, when a support level is broken it begins acting as its own resistance, and when the market moves up the resistance lines are acting as support for the market to go up.

Simply watch the market breathe. It tells you what to do. The market ALWAYS establishes support and resistance lines. At www.bluechipoptions.com we teach how to use S/R as a way to know when to buy long, and when to have a stop loss at a near support line, in case a breakout does not occur.

Part of trading is learning when to profit, and when to lose.

Now, for several questions from subscribers:
1. Is it a viable practice to "read the tape" at different intervals through the day to get a feel for changing bias through the day?
ex: 12:32 and 12:35 or when the market approaches a support/resistance line?

Floyd-No. the 9.32 and 9.35 is an old Wall Street trick, long before the advent of computers, and was a way of reading the tape for the morning bias. It still works.

2. I am starting to trust Dorsey's (from the Point and Figure Book we recommend) indicators more. I follow the Technical Indicator Report as one of the main pieces of feedback on market climate.

We saw the NYSE BP change in mid march from below 30 - which was a good buy signal for the bottom (it was about my second week of studying P/F and i was too scared to buy till mid April)

Recently we saw the NYSE BP drop from above 70 - a bear alert, if not a sell signal.

NYSE Momentum dropped below 30, and the NYSE 10 week is dropping like a rock.

Do you use these in your market/trend analysis at all?

Do these tend to be lagging indicators rather than leading as with the classic P/F which gives us S/R lines to look forward to?

Floyd-Yes, I use all parts of Point and Figure Charting, and we study bullish percentages, and we also do various versions of charting the same Point and Figure. We cover a great deal of this in our 130 page OEX Manual.
Point and Figure charting is supply and demand based, so never lagging. You are simply seeing a "picture" of who is buying and selling.

3. I was reading in the manual about selecting an option last weekend.

Browsing through the book I can't find the specific passage now, but I remember that we are looking for a delta of about .75 or so, and good volume.

Along with bias (when the market shows bias) what do we look for when selecting an option to watch?

Floyd- I use a simple system, believing the choice of option is not nearly as important as the condition of the market. Delta is not relevant to me. I look for heavy volume in OTM, and lighter volume in ITM.

I look for "strike points" that are near support or resistance lines

4. Dear Floyd,
Thank you for letting folks like myself try out OEXOptions for free. I sent my e-mail address on June 23 and I received the June 24 signals promptly. I may need more than 30 days to get the hang of your method as I feel I need to learn the language by which you communicate. I am not saying the problem is with you. It is with me. I need to learn a lot to be able to comprehend the market and how you are approaching it.

There were two signals I received for June 24: one to buy a July 415 put and the other to buy a July 415 call. Is this a strangle option trade?

When you say "Sell to 13.40-14.90 or tight profits," are you talking about a target price for the put option? The same when you say "Sell to 14.60-15.40" for the call option?

I am embarassed to ask but I need clarification to be able to know what to do when you say "# of days stop loss. Two buys expected."

And, for this e-mail, lastly, is there a place in the Internet where one can get the information on option prices Last, Open, Day High, Day Low and Previous Close? I have not seen any on the option chains.

Thank you again.

Floyd-This is from one of our 30 day free trial subscribers that do not gain entry to the password protected area of the websites where we have the complete manual, and all the videos from Floyd.

Trial subscribers are simply receiving our alerts and an introductory video showing them a "bit of what we do." So to answer the questions.

-Our positions when dual trades are a form of a strangle/straddle. We try to profit both ways, holding one position longer.
-When we give "selling prices" for the options we recommend these are the TOP prices we recommend. Many traders day trade or sell for tighter profits
-# of days stop loss refers to our simple rules:

The day after you buy an option is the "first day....and you count 4 days from there. This is the stop loss."

If you make a second buy on the option (part of the method we teach) the buy is twice as large as the first buy, and the cost is averaged by you. You then sell for 19 to 30% profits, or to the top sells we recommend each day for open signals. If a second buy is made the first day of the count begins again, on the day after you make the second buy.

Thursday, June 25, 2009

Hyenas Giggle to Express their Frustration

The Dow took a fast rise in the a.m. on anticipation of FOMC babbles, and we did not gain entry to the call. But, by midday all the gains were lost and the market was holding flat.

Traders were able to purchase the July415P at 7.00 or less in early buys as the market shot up to R3, and could have sold to 8.30 by 3 p.m.

What was most interesting within our trading around the FOMC was our earlier review that "no interest rate increases" was already factored into the market, meaning the market had already anticipated this news.

It appears Governor Sanford going crazy took more of the news today than the FOMC, and the morning showed VERY VERY light trading on the Dow, which was quite unusual for an FOMC day, but indicative of a FEAR driven market, with a rising VIX emotional index.

When I see a market on low volume around the FOMC, and in a trading range that doesn't allow much trading I know something is up. I continue to believe the market could bi-directionally move. There is STILL upside potential short term, but the market now shows all signs of overbought, including "fear and hesitancy."

A Floydian Lesson:

The FEDS say the recession is easing. They will continue the "bond repurchasing fund" (translation: buying our own debt with fake money) to keep the Treasury bill safety intact. The good news was that they are not increasing it, meaning we're continuing to find enough countries and citizens to finance our debt.

The FEDS believe inflation will be contained for some time.

Here's the lesson. They have no idea, and are just making this up on what they hope to happen, as economists historically have sad predictions about the future.

And to further our commentary about an unusual market, note our recalculation of the Dow yesterday showed a market that moved to r1, and to s3, but the moves were from tight moves.

We will continue to hold our open positions.

Two Floydian Facts to ponder:

14 parrot species are capable of keeping time to recorded music.

Hyenas giggle to express their frustration.

Wednesday, June 24, 2009

Yesterday's Market was lead by FEAR

The definition of yesterday's market: FEAR. No one is willing to move, waiting for the edge to drop off, or for all to bull back.

A number of subscribers wrote yesterday, and some great teaching about trading can take place from these inquiries. First, from Advanced Mentoring student MP, concerning something he read:

ARE THESE FALSE FACTS?
By David Wilson

June 22 (Bloomberg) -- U.S. and European stocks are destined to fall below March’s lows if bear-market history is any guide, according to Jim Reid, a strategist at Deutsche Bank AG.

Share prices tend to hit bottom “at extremely cheap levels” relative to earnings during so-called secular bear markets, Reid wrote five days ago in his first equity strategy report. Secular bears consist of multiple rallies and declines, with each slump producing lower valuations than the prior one.

The CHART OF THE DAY shows the Standard & Poor’s 500 Index’s price-earnings ratio since 1900, based on data compiled by Yale University’s Robert Shiller and cited in Reid’s report.

Shiller calculated the P/E ratio at 6.6 in September 1982, just before the 1980s bull market started. The gauge sank to less than six in the depths of the Great Depression and at the beginning of the 1920s. This year, it has stayed above 13.

“History tells us that at some point in the next decade there will be much more stressed valuations than today and a once-in-a-generation buying opportunity,” wrote Reid, who previously focused on credit-market strategy.

Even “a large rally” later this year and into 2010 may not be enough to prevent this scenario from unfolding, he added. The S&P 500 has climbed as much as 40 percent from its March 9 lows. Reid’s European benchmark, a local-currency version of the MSCI Europe Index, has risen as much as 33 percent

Floyd response: MP's question was "are these false facts?" These are not EVEN facts, but opinions. Reid may indeed be right, but it is first important to find out more about the source of the "information" and the "opinion."

1. Reid is an employee of Deutsche AG Bank, who has not done too well recently:)

2. A bit of study shows Reid as a 34 year old analyst, who before joining Deutsche was a "European Credit Analyst."

What we can gain here is that Reid was simply "quotable." He is NOT a trader, not a stock analyst, but an employee of a bank.

Floydian Rule #785 - 98.6% of all bank executives know only about banking, and how to promote themselves. Do NOT trust anything about the financial services sector.

And from subscriber LR from Romania:

Hello Floyd,

thank you for your fast response. I didn't watch the futures to see that they were down 77 points.
I am trying to learn your alerts very very well.
I am from Romania, a EU member country. I was a subscriber of your level 2 at the beginning of 2008, but didn't have patience to paper trade for 90 days and to apply a correct portfolio management.
During that month when I was a subscriber, you sent 22 alerts ( approx) and only 1(one) of them was loser, the rest were winners. I had the bad luck to invest my whole account into it and almost lost all my money.

Floyd Comment: LR did what many traders first do when trying our service. They "buy" a position, and "buy again and again" and hold "for it to break" and lose their money. As LR is learning, it is key to learn our system through paper trading, and dollar allocating your investments for your risk level.

My favorite false fact of the day is this: " Home sales in the U.S. increased in May, for the second month, a sign that the housing market issues are abating."

The facts? Record foreclosures caused home prices to drop, allowing home sales to increase.

Now, the market. What we saw in yesterday's trading was a "waiting game" in advance of the FOMC announcement. How Bernanke says how things are somehow means a lot to a great deal of people.

Tuesday, June 23, 2009

I Am Beginning To See How It Works!

New subscriber NTJ writes: "I am beginning to see how it works. I bought the July420P last week, and made a second buy just as the Manual teaches, and I watched it for several days "do nothing."

It lost money, it broke even, it lost money. My patience was wearing thin, as I was worrying about a loss, even though I had 5 successful trades before this in a row. I wrote you, and your comment was "Sit on your hands, and allow the market to breathe. This option is not yet through its cycle. Follow the rules :)". Of course, you were right, and I traded the July 420P Monday from a 9.50 buy to 12.90 , a 3.90 per contract profit."

Most of the world is now thinking of the stock market in a V formation. This means we were at a top, went to the bottom of the V, and are now moving back up. In actuality, we believe the market will see many more elongated W's over the next few years, and we are in the early stage of the first part of a W.

What that means: the euphoria MAY continue, there will be increasing upside, but also dramatic hesitancies and tests of the market. This has now just occurred with a 200 point drop Monday as the "real news" about our economic condition, and the state of the Global economy is now in the optimism phase, and reality began to set in. This optimism began to fade Monday as those "pressured profits, high unemployment,weaker labor wages and weakened demand" became more of a reality, after the World Bank predicted the global economy will now shrink 2.9% this year.

For the past several months the direction of stocks, commodities, and other risky assets has been driven at least partly by whether economic reports have surprised to the upside or downside. In other words, we have been "news" and "trigger" driven. What appears to have happened is that any news that was "less bad than we could expect" became good news, a reviving economy, and fodder for "it's all good." The DJIA is still down 25% from before the Lehman collapse, and before the house of cards fell.

So, now we have many chartists and stock gurus predicting a potential sell off over a short time to under 8000 again, when a week ago we had few even mentioning downside.

From Bloomberg:

“We see some positive signals pointing toward a stabilization but a V-shaped recovery is not realistic,” said Marco Huwiler, a strategist at Clariden Leu in Zurich, which manages about $88 billion. “The growth potential will be lower than before the recession.

The World Bank forecast the global economy will contract 2.9 percent this year in a report today. That compares with a prior estimate of a 1.7 percent decline. Growth is expected to return next year with a 2 percent expansion, lower than the 2.3 percent prediction about three months ago.

Federal Reserve officials on June 24, at the conclusion of their two- day meeting, may say the U.S. is showing signs of emerging from the worst recession in a half century. Following their last meeting in April, policy makers said the economy will 'remain weak for a time.' The central bankers will also keep the benchmark interest rate in the range of zero to 0.25 percent, economists said."

Floydian Rule # 456- Never trust optimists.

Floydian Rule #851-Never trust stupid people. As an example, Harpers Magazine index verifies: " 1 in 4 Americans thinks 'the Jews' were moderately or very much to blame for the financial crisis. "

"Floydian rules" may amuse you, but should be taken seriously. After years studying the market my various "Floydian rules" are what helped me create a successful trader from, and first got people "asking me for a copy of what I wrote up each day," the beginning of what is now OEX Options.

Here's an interesting fact, as we listen and read our "talking heads" on the market: 27% of all Americans have made premature withdrawals from their retirement or college savings since 2008.

Yesterday we saw a true consolidation beginning. Traders already had entry to the July420P and all made money, and no traders would have bought new calls yesterday on futures down as dramatically as they were.

The FOMC announcement is at 2.15 p.m. EST on Wednesday. Typically, there is whipsaw around the FOMC, and many believe interest rates will not be raised, and that this has already been priced into the market.

Downward moves to become what we see a beginning of true bias shift should conclude the day at least 230 points down, on increasing volume. Many pieces of data and economic reports are out this week.

Two way trades are possible, and the trader must have buy/sells in at all times.

Monday, June 22, 2009

Nerve Issues

Friday I wrote a trader in response to his concern of missing signals, or not knowing how to handle the emotions of the last week of trading, by sharing this:

Nerve issues occur in three ways:

1. Fear
2. Greed
3. Fear and Greed

Right now, in a flat lining market, #3 is the issue for all of us, as we live in anticipation.

Get anticipation out of the equation.

That is key. What we are seeing this past week is a vastly overbought market, still euphoric, that hits the same resistance area time and again and bounces back to the same support area. Classic flat lining, and always occurring in advance of a large move. The FOMC announcements take place this week, and a number of "catalysts" could occur that we believe will trigger two way swings.

The trouble is: NO ONE knows which bias swing will take place first :)

Our Dow projections are new this week, and make note, cycles of projections like this can occur (recently) in as little as 4 days and up to 21 days. It is fascinating to watch how Dow projections have moved just in the past 6 months to massive swings in days, and that when we return to "100 point" moves in the Dow, it is now seen as "less volatile."

For students of the economy, and those that truly want to understand our situation, and what is being done, we highly recommend reading Krugman or Roubini. Floyd has been a student of these economists as realists that have long understood the damages low federal interest rates have done.

http://www.theatlantic.com/doc/200907/roubini

From trader MR, as he read in Bloomberg. This article is not only fascinating, but scary!

June 17 (Bloomberg) -- It’s a plot better suited for a John Le Carre novel.

Two Japanese men are detained in Italy after allegedly attempting to take $134 billion worth of U.S. bonds over the border into Switzerland. Details are maddeningly sketchy, so naturally the global rumor mill is kicking into high gear.

Are these would-be smugglers agents of Kim Jong Il stashing North Korea’s cash in a Swiss vault? Bagmen for Nigerian Internet scammers? Was the money meant for terrorists looking to buy nuclear warheads? Is Japan dumping its dollars secretly? Are the bonds real or counterfeit?

The implications of the securities being legitimate would be bigger than investors may realize. At a minimum, it would suggest that the U.S. risks losing control over its monetary supply on a massive scale.

The trillions of dollars of debt the U.S. will issue in the next couple of years needs buyers. Attracting them will require making sure that existing ones aren’t losing faith in the U.S.’s ability to control the dollar.

The dollar is, for better or worse, the core of our world economy and it’s best to keep it stable. News that’s more fitting for international spy novels than the financial pages won’t help that effort. It is incumbent upon the U.S. Treasury to get to the bottom of this tale and keep markets informed.

GDP Carriers

Think about it: These two guys were carrying the gross domestic product of New Zealand or enough for three Beijing Olympics. If economies were for sale, the men could buy Slovakia and Croatia and have plenty left over for Mongolia or Cambodia. Yes, they could have built vacation homes amidst Genghis Khan’s Gobi Desert or the famed Temples of Angkor. Bernard Madoff who?

These men carrying bonds concealed in the bottom of their luggage also would be the fourth-largest U.S. creditors. It makes you wonder if some of the time Treasury Secretary Timothy Geithner spends keeping the Chinese and Japanese invested in dollars should be devoted to well-financed men crossing the Italian-Swiss border.

This tale has gotten little attention in markets, perhaps because of the absurdity of our times. The last year has been a decidedly disorienting one for capitalists who once knew up from down, red from black and risk from reward. It almost fits with the surreal nature of today that a couple of travelers have more U.S. debt than Brazil in a suitcase and, well, that’s life.

Clancy Bestseller

You can almost picture Tom Clancy sitting in his study thinking: “Damn! Why didn’t I think of this yarn and novelize it years ago?” He could have sprinkled in a Chinese angle, a pinch of Russian intrigue, a dose of Pyongyang and a bit of Taiwan-Strait tension into the mix. Presto, a sure bestseller.

Daniel Craig may be thinking this is a great story on which to base the next James Bond flick. Perhaps Don Johnson could buy the rights to this tale. In 2002, the “Miami Vice” star was stopped by German customs officers as he was traveling in a car carrying credit notes and other securities worth as much as $8 billion. Now he could claim it was all, uh, research.

When I first heard of the $134 billion story, I was tempted to glance at my calendar to make sure it didn’t read April 1.

Let’s assume for a moment that these U.S. bonds are real. That would make a mockery of Japanese Finance Minister Kaoru Yosano’s “absolutely unshakable” confidence in the credibility of the U.S. dollar. Yosano would have some explaining to do about Japan’s $686 billion of U.S. debt if more of these suitcase capers come to light.

‘Kennedy Bonds’

Counterfeit $100 bills are one thing; two guys with undeclared bonds including 249 certificates worth $500 million and 10 “Kennedy bonds” of $1 billion each is quite another.

The bust could be a boon for Italy. If the securities are found to be genuine, the smugglers could be fined 40 percent of the total value for attempting to take them out of the country. Not a bad payday for a government grappling with a widening budget deficit and rebuilding the town of L’Aquila, which was destroyed by an earthquake in April.

It would be terrible news for the White House. Other than the U.S., China or Japan, no other nation could theoretically move those amounts. In the absence of clear explanations coming from the Treasury, conspiracy theories are filling the void.

On his blog, the Market Ticker, Karl Denninger wonders if the Treasury “has been surreptitiously issuing bonds to, say, Japan, as a means of financing deficits that someone didn’t want reported over the last, oh, say 10 or 20 years.” Adds Denninger: “Let’s hope we get those answers, and this isn’t one of those ‘funny things’ that just disappears into the night.”

This is still a story with far more questions than answers. It’s odd, though, that it’s not garnering more media attention. Interest is likely to grow. The last thing Geithner and Federal Reserve Chairman Ben Bernanke need right now is tens of billions more of U.S. bonds -- or even high-quality fake ones -- suddenly popping up around the globe.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

Friday, June 19, 2009

June Triple Witching Expiry Today

Yesterday we again saw market tops that we outline below in detail within our Dow projections. The market is at a clear struggle between support/resistance, and what is good news and not.

National unemployment yesterday hit 9.4%. 8 major businesses went bankrupt. Name brands. We are listening to a government, I think rightly, actually trying to seize controls of the financial industry to put controls in from the GREED. 99% of Americans do not even know what Libor is, or "derivatives." It's simply to them "people got loans on houses that they shouldn't", etc.

What happened to Bernie Madoff's fake money that helped feed the stock market?

It was easy to trade profitably yesterday. In our alert we had recommended OXBSD July 420P, bought under 9.80, and sold to 11.10 in early morning trading. We'll keep this trade open, however, as we will the OTM July call, also tightly profitable in yesterdays trading.

Today is June triple witching expiry (up 4 of the last 5 triple witching) , ending a week of flat lining volatility and a struggle between a "bull market continuing", to "is this enough of a consolidation. I repeat: last week the USA Today had colorful pages about the turnaround of the economy, and yesterday we shared how many economists see the "end to the recession."

Historically, these guys are always wrong:) Just as those armed with true facts find little difference in key doctrines between Shia, Sunni, Sufi and Prebyterians. Charts show a bearish wedge, and intuitively we all know the market has had remarkable successful of late, and market direction typically does proceed general economic direction. Yet, more Americans are now questioning if Obama has the right plan and why "things aren't getting better yet."

I do not believe 99% of the American people know how close we came to an economic meltdown in this past year, and how "just breathing" we are. Yesterday we all watched a market at 8500, just think of 14,100 a few short months ago, and we are now excited for the large upside we've seen. How perspectives change.

Sometimes we make it hard to see what is real, as we are too busy involved in the "day to day" to even conceive what we have all wrought. And businesses we are paying for, just a sign of how complex ineptitude can be, continue to not perform. Here's a great Citi (C) story:

1. A customer pays off a $378,000 business loan, after they had paid off two other mortgages with Citi.

2. This customer maintains AX and Visa business accounts, with a 60k limit on the Visa account.

3. Notice is received by the customer after they have paid off the business loan that the Visa credit limit had been moved to $4800.00

This bill had been paid in full each month for 60 months, with 20k averages per month.

4. Customer complains, get supervisor, writes letter, and never gets any answer from anyone. Trys to call top people. Credit line lowered. Customer cancels card.

5. The next week Citi sends this customer a solicitation for a business credit card with an "automatic 5 k limit."

6. Clueless, Citi loses long term customer that had borrowed over 1 million and paid all "revolver loans" off on time.

Citi (C) bank stock has recently been performing well, and they are showing signs of "rebirth", say the papers.

Are they?

____________

Advice from Floyd to all subscribers:

I was with an old friend yesterday at lunch that subscribes to our daily alert. He makes his living off trading "the methods" that are listed in our detailed pre-market alert, and was sharing that he prints this alert, makes notes on it, and trades both stocks and options off what he reads.

Be sure you also READ this. Don't just look for signals to buy, and then wonder later why you lost money? Learn to trade, this alert works with how to view day trading stocks, other indices, and teaches the emotions of the market, much of it outlined to you within the rules in this alert.

Thursday, June 18, 2009

The Real Facts

The Dow projections we list below are the longest detail we've provided within projections in some time, and there's a strong reason for it. We have been showing projections that occur typically within a 4 to 21 day period, obviously moving more quickly around any increased volatility. There's a detailed reason for this. Originally we saw a market top at 8850, and slowly revised our projections as the market continued euphoric upside.

We've now hit our various support and resistance lines, as noted below, numerous times, showing a market not sure of itself, and "waiting".

The real facts are:

1. Unemployment will soon hit 10%, Obama says, which means really 20% in real people out of work.

2. The manufacturing sector is not expanding.

3. Our debt rises, and our issues mount.

Roubini, who we study, and believe:

http://us.mobile.reuters.com/mobile/m/AnyArticle/p.rdt?URL=http://www.reuters.com/article/InvestmentOutlook09/idUSTRE55F4ET20090616

There is a strong possibility of whipsaw here, with market moves to 8850 up, back to 8350 area, and returning to above 8850, AFTER we complete the cycle in the Dow we are in.

The best trading is taking place by recalculating the Dow or the OEX during the trading day to catch the tight changes that take place after some volatility occurs. We highly recommend using our pivot point calculator for tight day trading.

Study in advance the news that can trigger market movement, such as the upcoming FOMC announcements next week. This is normally a whipsaw trigger area in the market, and the speculation is already rampant.

Study: http://www.bloomberg.com/apps/news?pid=20601087&sid=arWqPRMOr14A

We list these detailed Dow projections specifically because we see the market struggling through a trading range, and hitting bottoms.

By 3. p.m. the market had bottomed on the theoretical Dow at 8401, and had hit tops of 8603.

Many traders wrote yesterday wondering how to trade around s1 or r1, or pivots, on a day that has such tight trade movements. Remember, at times we don't need S/R. Here's an example:

In today's market, the Dow moved in such tight ranges that the pivot, s1, and r1 were all "repeated struggles," show a market at a crossroads.

And for clarity: 64% of rich Americans say they have “lost faith in the integrity of financial service institutions.”

Wednesday, June 17, 2009

Another Profitable Day on OEX

Another profitable day at OEX. Easy to trade, and great returns.

An interesting commentary from a trader in the market, and his view of the "now valuable USD":

"Every analysis needs a reference from which to assess other´s opinions and sentiments. Here are my reference points:

Yields on treasuries will give me an idea of the perceived risk of owning US dollar denominated assets.
LIBOR will give me a good idea of how well banks trust each other´s financial health.
TED spread will give me a good idea of the amount of liquidity in the banking system (during the height of the crisis it went to over 400 basis points)
OIS - LIBOR spread will give me a good idea of the amount of liquidity in the world´s financial system ( during the crisis it too went to over 400 basis points)

You know that when LIBOR, TED and OIS - LIBOR move up that the percieved risk of liquidity shortages and bank defaults is rising and you will know where the DOW will head.

If the yields on treasuries continue upwards with their recent high volatility then you know that interest rates are sure to go up and you know where the DOW is heading.

Pretty simple really. Last year as defaults increased on home loans etc the banks ran into a liquidity problem and they started hoarding cash saving it in treasuries causing the dollar to move up on the USDX. The Fed came to the rescue with all kinds of new liquidity to save the banks and TED and OIS-LIBOR and LIBOR moved back down. But now we have yields on the short end of the treasury yield curve going nuts as investors mistrust the dollar because of all of the essentially uncollaterilized new dollars created with many trillions more to be created in the next year. So fear of dollars is rising, risk perception increasing so yields are going nuts with interest rates sure to rise. If the risk of owning dollars is perceived to be extremely high we might see the absurd situation where the Fed rate is zero but interest on 30 year mortgages over 10%. Talk about a distorted economy. And people still want to play in this market? It´s nuts. "


We discussed yesterday if this is a bull market cyclically or secularly. These are important distinctions. On Monday we saw below average volume lead the market down 187 points, right to the 8550 support line we suggested might short term hold the market. Students of Ned Davis Research show that secular bear markets run 13 to 16 years. Within those cycles are many cyclical ups and downs. The bottom line to secular vs. cyclical is that IF we are in a true rally it has a year to run, and already half of a year has taken place. Gains in cyclical bull markets average 64% and are generally over within a year and half.

Davis says the rise in stocks since March 9th qualify as a bull market, but still sees price to earning ratios, and didn't see market valuations fall far enough during the sell off.

The majority of institutional traders do not believe we are in a long term bull run, but the euphoria may overtake any logic.

Yesterday we saw stumbling before retreat at about 2.00 p.m. In recalculating the Dow support lines at 2.00 p.m. 8541 was s1, and you'll note that this area is strong strong support, as we saw Monday.

The market dipped just below it to 8510, and hesitated. In our new Dow projections I also saw the next support line, s2, now at 8470 (note how close this is to my own longer term projection lines)

Remember, we are trading short periods of time, playing our inventory against another person's inventory (see: http://www.oexoptions.com/pages/fruit.html ).

From trader SW, summing up how he traded yesterday:

"Floyd, in at opening noting tight futures and your comments on risk I waited out the July420P, and bought it at 8.70. Sold at 10.80 by 2 p.m. I recalculated the Dow midday and saw that the new s1 for the Dow was 8541.12, so I just sold out. I made 2.10 a contract, a respectable 24% in a few hours, and simply waited the rest of the day out.

I've learned most from you to follow the Dow projections, limit my input, and simply play the support and resistance lines carefully. You continue to impress me as a teacher."


From a level 3 subscriber working with me on the OEX Manual, and going through the videos on the website:

"Floyd, this was the best. Got in on the J420P at 9.00, and sold it at 11.00, made 2.00. I am amazed at this dow stuff. i'm still watching the videos on this, but you are using intuition and data to give us startling predictions"

Tuesday, June 16, 2009

We Are At a Market Crossroads

As we are at a market crossroads, and a healthy consolidation began yesterday, it is interesting to look at our longer term (two weeks) projections for the market.

Gas fell yesterday. Will it for the long term?

Hmm, when gas hits $8.00 a cross country flight will be $1000.00, airports and resorts will close, and the state of our manufacturing industry will be in shambles. Author Chris Stein even believes that Walmart, which has 6000 suppliers, 80% of which are in China, will be killed by the cost of global transport. Oil will be our passport to a shrinking global economy.

Could this be a country headed to nuclear reactors powering everything, with high speed rails connecting cities, highways changed or closed.

I believe, much like the article by Baker, that President Obama truly sees the disparity of our situation. Unlike Republicans, who have no answers, only rhetoric (with no leader) I am concerned about how our country is led in direction, but surprisingly not by what Obama is doing, by what he is not doing.

We were closer to the edge of financial meltdown that most of us "simple citizens" will ever know. Obama does see the overall big picture that there is NO WAY it can continue the way it has continued, without world ruin. But as always, rather than fully introducing his radical changes (not socialist, not Marxist, but radical), Obama is choosing to play middle grounds, and try to work with all.

There is too much greed within our system, our corporations, and our government for "trying to work with all" to work.
______

The politics talk above lead to the crux of the discussion for our traders this week: Secular or Cyclical Bull Market?

We know the drill. Bulls believe we are entering the beginning a true bull market, and the economy is righting itself, with the market historically leading.

Right now we've all experienced massive stock losses, so the bull run we're in often doesn't feel like it. But just watch the reality:

The Dow fell 33.8% in 2008, and last week finished 34% above its 12 year closing low on March 9th. The S &P 500 is up nearly 40% from its low on that date. The traditional definition of a bull market is a 20% gain from a low point and a bear market conversely a 20% decline from a high.

The facts: The Dow remains 38% below its record close in October 2007, and the S & P is nearly 40% below its record.

The new facts will be if consumer spending is strained, or continues ( I see tightening of belts everywhere, how about you?) upward. And our smaller manufacturing economy has lots of excess capacity.

There will need to be a lot of money spent that will get people spending, the key to how our game works.

We'll share more this week on secular vs. cyclical markets, studies done by Ned Davis Research, and a bit of perhaps what could happen.

In the meantime, we made a bunch of money on our puts yesterday as the market finally broke and was at our 8550 support line by 3 p.m., with a 210 point drop.

We re-calculated the Dow at 9.45 a.m. and 1.30 p.m. yesterday, and it was very helpful for us to see where s3 became the new s1, and 8550 held for several hours as a bottom.

Our June 445 P (OXBRI) was profitable on it's last day before stop loss.

We'll lead with dual signals, as the market may have bottomed. The bear/bull struggle is far from over.

Monday, June 15, 2009

Painting the Tape

June is triple witching week, Dow up five straight years between 2003 and 2007.

On triple witching Friday, however, the Dow has been down 4 of the last 5.

And, the week after triple witching, the Dow has been down 9 years in a row, and 16 of the last 18 years.

Interesting historical facts here, as we remain in market of lower volumes upsides regularly. Some chartists and many professional traders believe what we saw Friday, with the last minute run up, was yet another example of the market makers "painting the tape."

Painting the Tape

What does it mean?
An illegal action committed by a group of market manipulators buying and selling a security among themselves to create artificial trading activity, which, when reported on the ticker tape, lures in unsuspecting investors as they perceive an unusual volume.

In Other Words...
After causing a movement in the security, the manipulators hope to sell at a profit.


The upside continues to surprise, and the market is now "UP" for the year. Euphoria reigns. How much of it is "painting the tape," how much just pure euphoria, and what is reasonable are always secondary to what is reality, and upside doesn't stop. Floyd remains wary :), cynical, and smiling.

Calls were tightly profitable on Friday, and we have an open hedge position to the put that we will sell by end of day. Only risk traders will hold this hedge position a day or so longer. We'll move to July expiry today, but make specific note that there is a count of 0, meaning a zero bias. Both option strings are strong.

Friday, June 12, 2009

We Have Created a Bull Market Around Wanting it to Get Better

Here's commentary that shows the opening yesterday:

"U.S. stocks advanced on Thursday morning, paced by gains for consumer staples stocks, after new data on jobless claims and retail sales.
The Dow Jones Industrial Average was up 39 points. The S&P 500 gained 0.3% amid a 1.3% gain in its consumer-staples sector, and the Nasdaq Composite Index rose 0.2%.
Initial claims for jobless benefits declined 24,000 to 601,000 in the week ended June 6, though continuing claims hit a 19th straight record high, a sign that the prolonged recession has made it very hard for the jobless to find new work. The figures suggest that, even if the peak in job losses has passed, a recovery to any kind of solid increase in monthly payrolls is unlikely for many months.
Separately, retail sales rose 0.5% during May, the third increase in five months, but much of the gain was attributable to a jump in gasoline-station sales thanks to higher pump prices. Excluding auto sales and gas station sales, retailers saw sales rise 0.1% in May.
Fears that rising bond yields and oil prices could derail an economic recovery squeezed U.S. stocks on Wednesday. After a weak 10-year Treasury auction sent the benchmark yield to the highest levels in more than seven months, the U.S. is due to auction off $11 billion of 30-year notes at 1 p.m. ET.
After the release of the sales and claims data, the yield on the 10-year note rose to 3.97%, continuing its flirtation with the psychologically important 4% level. Yields move inversely to prices.
Oil prices climbed after the International Energy Agency increased its estimate for 2009 world oil demand. The front-month crude contract climbed above $72."


Floyd comment: In Colorado flying home in the a.m. I had the opportunity to read the USA Today. This is written for those of with 8th grade educations (really), and had a great simple article explaining how the "recession was soon to end" and by late fall we'd be in "good shape."

Floyd rule #478: When the newspapers and financial magazines predict something, most likely the reverse will soon happen. So we'll lead next with what the Dow did. We hit theoretical Dow highs of 8918, and lows of 8696, allowing many traders day trade profits to the put.

Let's hear from a few subscribers:

DS:
Just a quick comment and question. Market has been climbing on declining volume for 2 months now most notably the last few weeks. To me, its so obvious buying power has been exhausted here as everyone waits and the MM’s continue to artificially boost the markets trying to lure in more buying power so they can they start to unload and let the sheep slaughter begin. So question is… this is just one perspective of how I am interpreting what I see in the market right now… But this doesn’t have anything to do with S and R so with this said, how do you know when you see definitive S and R levels begin to be violated by the sell-off? Is it also a volume issue? Watching the tape?


MP: I hope your trip went well..

Listen...how do you deal with the following scenario?

I had not positions and watched the market climb today to 8925 on the Theoretical DOW...just shy of your 8950 resistance...

After she settled down I purchased some 445 puts at 7.30 (when the DOW was up about 95 pts..)...

She did not drop like I expected but did come down slower towards the end...

At 3:53...I decide to sell them for 1.00 profit (8.30)....2 minutes later the bottom drops out and 10 minutes later after hours the option is going for 9.80 BID price!!

That is another 1.50 profit in 10 minutes that I could have had if I would have just waited...

Why does that always seem to happen to me? When I hold out for more I get burned and when I don't hold out like today...I lose big time profits...

How do I remedy this situation?

It drives me nuts and makes em angryf!!

Don't get me wrong...I'm happy with a 1.00 profit but when I could have had 2.50 profit instead in only a matter of minutes...that irks me little bit...and it seems to happen often to me...

Your thoughts?"



When the Consumer Price Index came in at 54.9, up from 40.8, there was euphoria.
But the National Home Price index fell 19.1% from the first quarter last year, the biggest drop since the index started 21 years ago.

Unemployment is a lie, and has been for years. It only shows who are on the rolls of unemployment, yet all the unemployed reflect on a cost to our citizens, and to our work force. The unemployment came in at 610,000 but the government went up from a .004% to 8.9% on a seasonably adjusted metric. This means it’s worse than it looks, but we all overlooked this, and it will get worse once GM and Chrysler send their waves of bankruptcy through the cycle of the businesses they work with, from vendors to their retailers. We see 700,000 a month from the government cycle as reasonable, and personally see unemployment in the U.S. at over 20%, in Floydian “real” numbers.

We must remember that in the first quarter companies wrote off everything they could, while they could (we had a negative 6% GDP), which drove earnings freakishly low, and in turn drove up the Price to Earnings Ratio on stocks.

What it really is that people are trying to get their money “back,” to “break even,” and the first quarter earnings looked good because of the write offs. We have created a bull market around wanting it to get better. Typically these are drivers for sell off when reality sets in. The Market Makers don't know what to do but buy to fill their portfolios, and we begin to take data and interpret all of it positively.

We think the market will go up well for the long term, but remain concerned the upside without consolidation, on low volatility and volume, is showing all charting signs of bearish wedge,and sell off.

We remain: Long Gold./Short Treasuries.

Thursday, June 11, 2009

I Am So Organized, It's Anal

By 7.00 a.m. yesterday the market had hit a 107 futures rise on the Dow, showing a strong upturn. 8950 is a strong resistance line and with the ongoing euphoria in this vastly overbought market may have acted as a trigger.
Two large triggers emerged before market opening yesterday:

1. 10 of the largest U.S. banks are going to repay 68 billion in bail out cash.
2. The Obama administration is dropping the plan to cap salaries at firms receiving government bailout money, which does leave them subject to limits on bonuses. We believe Wall Street, et al will now define salaries as a larger part of compensation. Doing this eased fears from Wall Street to insurance companies, and to all that have made large bonuses as a part of their pay.

The sad answer here is that without bonus or compensation of strength we would otherwise effectively lose our "money movers" to the private sector, making it harder to "create rules on."

What we are seeing in the market is abnormally good, and each time this occurs, there is a precipitous downfall. Think of the market as a balloon we let off to the sky. One balloon we fill with helium and leave a large hole. This balloon rises quickly, so fast in fact we may lose sight of it, only to have the helium dissipate and the fall of the balloon without any helium helps it lose all momentum and crash to the ground. The second balloon is the market under normal conditions, with normal "air," and no holes and it is released, floats around, rises, falls, and finally falls.
Both balloons are signs of the stock market, under a "bull run", or an abnormally "helium" based bull run.

Watching the market this week we've seen it harder and harder to make profits as the market can move 200 points in a day, bi-directionally, leaving traders frozen at their screens:)

Floydian Rule #356: NEVER trust an optimist.

At 7.00 a.m. yesterday we issued a pre-market alert for risk traders for a call. But......the market did not open higher, despite a huge futures, and did open down. Yet another sign of a market simply "waiting."

Level 3 trader MR said it well:
"Your lessons are sinking in, making my new trading experiences profitable.

Did well with the 430 put. 2.80 buy, up to 4.30 sell in 2 hours."

http://www.bloomberg.com/apps/news?pid=20601087&sid=aIaglylG2zio

And....:)

90% of economists predict the recession will end this year. About 74% expect the recession, which they define as starting in December 2007, and the longest since World War II, will end in the third quarter. 19% see the turn as happening in the final quarter of 2009, and 7% believe it will end in the first quarter of 2010.

I am often amused by this as I remember not long ago when Bush and McCain told us the economy was fundamentally strong, and even before that lovely Bubbles Greenspan (who helped cause this whole mess) and Bernanke were both saying that by "definition of recession" we were not in one.

Of course, by "definition" we now are. So take the talking head commentary and our economists collective bubble head thinking, and we'll wait and see.

For students of economics that want to understand how Obama is working, study the Nobel Prize Winner Paul Krugman and New York's Roubini. They have a pulse on the market.

Lots of traders want to "hear or read" how Floyd himself trades, and I have many videos online for your review that show my charts, and what I watch.
_______________

I am so organized in my trading it’s anal. My desk looks like the desk in the video on the home page, and my desk at my home office identical. Both offices look the same.

My desk is clean and very organized to start the trading day.

I begin at 4.30 a.m. with a view of futures, and then an hour of exercise, and half an hour of meditation, and another look at futures, then breakfast.

The day has now begun. I answer emails and do general work in the early morning, pre market, noting that the majority of my trading time will be 9.30 a.m. to 11 a.m. and again from 2.30 p.m. to 4.15 p.m. (the OEX stays open 13 minutes longer than the market and it’s a great time for trading)

During the midday, when I am home, I go out to my backyard in Florida with my dog Lacey and read for a bit, a novel, not news. I take a long swim in the pool, and then take a shower, and prepare for afternoon trading.

Everything has an order and routine when I am trading. I do not allow other input.

My core rule is: never enter a trade until the situation meets my harshest criteria.

As I am trading I am watching the long term conditions, which I judge by downtrend/uptrend

A strict definition of an uptrend: higher lows
A strict definition of a downtrend: lower highs

I study this, along with my Dow projections, and I re-calculate the Dow (or the OEX) at 10.30 a.m. and again at about 1.45 P.M. EST, if market conditions are volatile.

And, all of that "long term thinking" is NEVER longer that 4 weeks out in projection, typically much less. I do not believe anyone can predict with any consistency or certainty the market moves themselves over any extended period
of time.

Wednesday, June 10, 2009

Money Can Be Made in All Markets

Many of our new subscribers on our 30 day trial are writing with questions about pivot/support and resistance. Because these traders do not have access to our OEX Manual or online videos yet, during their trial, I'll try to simplify many questions, that might help clarify for all of us:

1. The pivot/support and resistance on "large move days" will appear "far" from where the market closed. This is normal. This is yet another reason, if trading around S/R, to recalculate the Dow or the OEX during the trading day.

2. The core purpose of pivot/S/R is to show you where the market will "hesitate".

3. At OEX we provide a number of ways to enter a signal, and it is important traders review the methods we offer. When one enters at "best buy," for example, they will be entering at s1 or r1 area, waiting for a retracement.

As an example if the option closed at 9.00 and we suggest buying at 7.40 on "best buy" we are suggesting one buy at near R1, and expect a larger second buy (if necessary) at a 33% discount to buy one, which would be typically at r3/s3, depending upon the circumstances.

We highly recommend trial subscribers write to us regularly with questions until you become full time subscribers and gain access to all of our materials.

Money can be be made in all markets. Please remember Monday, when we had a 200 point run bi-directionally during the day, from new subscriber, but veteran trader JCR:


> "Floyd---what a day it was for me. Let me tell you what I mean. I received your premarket alert, I looked it over carefully. And, after thinking it over, I thought...well, on Monday there's either gonna be a continuation of Friday's modest move up, or there's gonna be some consolidation, in which case there was gonna be some money being taken off the table, hence I'd be looking to buy some Puts. O.k. In comes your premarket report and confirms just what I'm thinking. Fine. I tuned into CNBC to check the futures and what do I see(?)---UGLY! Alright. Your signal regarding the June 430 Puts was on the money. Now I'm getting a little antsy...I wanna trade but I don't want to force it (like I used to in the past). So I wait, the market opens on the downside and I'm ready to pull the trigger on those 430's. The market starts run, the adrenaline begins to kick in, I'm trying to stay cool but it's been a while since I've traded and I don't want to make the same mistakes I've made in the past, like chasing a trade. I'm proud to tell you that I didn't chase it , and my attitude was nearly neutral in that I didn't beat myself up over missing my entry point. Now, I have to reevaluate what it is that I'm gonna do, and I know that I'm not going play anything to far out-of-the-money, knowing that I need to play an option with the highest delta that I can afford (this is how I'm thinking). So, I start to follow the 445 Calls, I kept seeing the bid running back and forth between 2.85 and 3.20. The option dips back to below 3.00. I looked to execute the trade but I kept entering it incorrectly and a window kept popping up telling me that I had insufficient funds...of course this was ridiculous. The problem, it turns out, was that I failed to type-in the decimal point. Man...can you believe this? O.K. By the time I entered the order correctly, I paid 3.50---I was betting on a retracement, that if it were to occur, it would happen late in the day. Ahh. Patience.
>
> At about 3'ish, the market begins to show signs of a reversal---I see it running, I continue to refresh my page so that I can see what's up and I end up getting out at 4.60 for ten contracts. And yes, I did have exit price on both ends. I truly earned that $1.10. The take home message is simply that your signals were on the money. I can't wait to hear what you have to say about tomorrow(?) Until then, you have a good night. Bye for now :)"


Floyd comment: JCR traded the system, not the option, the key to how true trading can work.

Now, let's remember yesterday. Trader DS summed it up well:
"It is amazing watching the market today – in terms of “breathing” as you teach. You can tell its just gasping for air to the upside with every ounce of strength that it has to go higher. The bulls are fighting to the death here. Am I seeing this correctly? There is downward pressure you can tell but not heavy selling pressure here – almost like its just run out of gas and what’s next? The calm before the storm.

A quick question… Sometimes I notice that even if the count favors a bias the signal may be for an option the opposing direction – what is it that influences this?"

____________
To answer DS, and to explain what we saw yesterday in a flat lining wall that moved the market from a low of 8685 to a high of 8843 is a classic example of a market hesitating to the upside, and WHY we have watched the bias count recently and felt it unreliable.

Traders were able to profit tight $1.00 profits on the call, if they could move fast enough, and puts were available at good buys for day trades. I was not online today, but while traveling watched the market gyrate enough to allow any day trader to re-calculate the Dow or OEX and play for tight profits.

So what's next? A bias count of 0, meaning no clear direction, and a vastly overbought market. We'll sit it out today with just our open puts, and with the struggle to gain profits to any OTM call we'll refrain from a new position, as we think any ITM call may be too high risk for June expiry, and the market simply too uncertain.

Travelers and Cisco have replaced Citi and GM in the Dow. This was "edged" in on June 8th. The move really shows the depths of this depression, that two stalwarts of society have lost their name. Sadly, deserved.

In July 2008 Oil was nearly $150.00 a barrel. In late April 2009 it stood at $50.00, and has recently moved back up to the $60.00 range. And now....

Many talking heads believe oil rising is a sign of the global recession losing its’ grip, but it’s really supply and demand, and nothing more. We have a glut of product because of prior lower demand, and OPEC is struggling to control the price.

The current slackness truly in energy markets will last no longer than it takes for the global economy to truly recover, and we see oil as a commodity in which, yet again, the world has had little forethought. The current run to “hybrid” cars uses electricity to create the battery, which uses oil, and we’ve yet discussed “discarding” batteries.

It is much like our run at ethanol, only to discover what it did with the price of corn.

The International Energy Agency (IEA), the energy watchdog for the world, says a lack of investment in new sources of oil risks a supply crunch worse than the problems that pushed prices to just under $150.00

This watchdog agency found “that production form 800 of the world’s producing fields was declining at an annual 6.7%, and at an accelerating rate. This means 45 million barrels a day would have to be found and tapped in the next 22 years simply to meet an unchanged world demand.”

The IEA states "demand is expected to rise from 85 million barrels per day last year to 106 million in 2030."

___________
Dividends are declining at the fastest rate since 1999 in Europe. Just give the U.S. time to have our corporations, with lowered to no profits, begin to cut even more dividends. It's a bad sign.

Floyd sees dividends as "bribes" from a company to "stay with them." They are saying, "if you buy our stock we will pay you back X% a year on top of appreciation, please stay with us."

This can also be said as "hey buddy, I'll give you 3% kickback if you buy this stock". All is not as it sounds, or appears.

What does this mean to Floydian thinking?

1. We are idiots and have no idea what we are doing in understanding how oil controls us.
2. Lobbyists fight our efforts to “be smart."
3. Oil is going to go up in price.
4. There will likely be a hurricane, or a scare, that will hit pipelines. FEAR will abound.
5. Some idiots will begin to think everything is better, that we are “out of the woods” (we are not even NEAR the woods yet), and create more demand, supply will be used up, and no forethought will take place to increased refinery production, or alternatives to oil.

Butterflies Taste with Their Feet

Butterflies taste with their feet.

Banging your head against the wall uses 150 calories an hour.

In the next seven days, 800 Americans will be injured by their jewelry.

Each of the above bits of information are "facts." The usefulness of the fact, however, isn't defined in any way by it "being."

I compare this information of "facts" to the unemployment reports our country puts out. We read about our unemployment, and the interpretation of "improving" or "worsening" based off faulty information as to the number of truly unemployed.

Use this kind of thinking as you analyze and watch the market each day. What is true, and more important, what is RELEVANT. And, what will "trigger" emotion in the eyes of other traders, which we want, making the market volatile. This is what an economic calendar or "event trade" is, when we hear the talking heads later say "the market moved down today because of 'unemployment, bank debt, etc"'.... it is NOT the event that caused the decline, which we know was already built into the market from our Dow projections, but the 'event' triggered or provided catalyst to the movement.

This is one of the most important lessons to learn in trading.

There are many chartists and traders that believe the bull rally will continue, perhaps thru June, and that we could rebuild highs we reached after the first panic. Institutional investors have had little downturn in which to buy up securities, and if it is true they are building up the market based on they "have no choice but to buy" to fill a portfolio, be prepared for the sad returns when their buying at highs surprises us all when lows do come again. I am a chartist, and cynic, that can't fathom why the market hasn't consolidated on various triggers, and thinks that the longer the consolidation is held off by "buying up" the greater fall we'll have.


Yet at the same time, core and top professional traders are right with me, shaking their heads in amazement. Here's Jeff Clark: "The market has sidestepped over multiple warnings signs, bearish technical indicators, and numerous negative divergences. My short-term momentum indicators have been extraordinarily bearish over the past few trading sessions, and we've seen the market dip lower and then snap right back.
We had the opposite situation in late February and early March, when all the signs were pointing toward a market rally, yet stocks continued to press lower. Eventually, though, the weight of the indicators forced a reversal and pushed the market up.
We are frighteningly close to the reverse of that point now."

___________________

Yesterday the market "tried" to consolidate. In early trading the market hit lows of 8593 on the theoretical Dow. Our June 430P hit highs of 7.50 in early trading.
Whipsaw shifts took place for higher risk call traders who day traded for great profits: -OXBFI OEX.X JUN 2009 445.0000 CALL Available as low as 2.80, sold to 4.10 6/8@!Nice profits. And later in the day...highs of 5.10, as call traders again rolled the dice that no downside would hold.

Traders interested in our new signal yesterday to the June 445P were able to buy only above prior day close, with lows at 15.80 in early afternoon trading, but by late afternoon were able to trade the put buy down in price on the swing. A constantly reversing market.

By 3.30 p.m. the market did a complete whipsaw, turned to in the black, and traders could see the bull/bear clash in reality.
The market went from s3 to r3 in a day, in a 200 point swing. Bull rally, or exhaustive gap? The dialogue never ends :)

Monday, June 8, 2009

Don't Let Personal Prejudice Enter Your Thinking

Art Cashin, director of floor operations at UBS, offered CNBC his insights.

Generally, "we're living in an environment where a lot of portfolio managers are underweighted," Cashin explained. The managers were "waiting for a pullback that never came" and now "they have nothing to show for."

Cashin said "one of the reasons for these late-day surges" is fund managers' desperation: "You've got to hold your nose and buy'em."

What does he expect going forward?

"I think — as I said when you had Byron Wein on — you might get as much as a 10 percent overtrade here. But if we went up another 1,000 points on the Dow, I would head directly to the bomb shelter."

The above from subscriber BD, trying to find "reason" for the euphoria. Sadly, the above answer may be a large part of the late day surges, as shorts also cover themselves, and we create a negative cycle of upturn.

Friday showed an opening swing and a progression of whipsaw throughout the day that shows the struggle in the market.

"U.S. stocks climbed on Friday after a report that showed a marked slowing in the pace of job losses.

Shortly after the opening bell, the Dow Jones Industrial Average was higher by about 76 points, driven by Alcoa, up 5%, Boeing, which rose 4%, and Bank of America, which rose 2.7%. The blue-chip benchmark turned positive for the year, up about 0.6% for 2009 in recent trading.

The S&P 500-stock index was up 1%, bolstered by gains in its financial and its industrial sectors. The Nasdaq Composite Index climbed 0.8%.

Nonfarm payrolls slid 345,000 in May, the Labor Department said, well below the 525,000 decline economists expected and the smallest fall since September 2008, when the recession intensified after the demise of Lehman Brothers. The unemployment rate jumped 0.5 percentage point to 9.4%, highest since August 1983. Economists had expected a 9.2% rate."


Allow Floyd to translate: Unemployment hit highs we've not reached since 1933. The pace of jobs statistically shows a "more positive decline," which to Floydian logic means the BEST jobs available for many right now are at $12.00 hour.

What this shows, the immediate 86 point run up in 20 minutes, at opening Friday showed the strength of the bull thinking, and allows many chartists to begin seeing new tops at 9150.

As you review this market it is important to not let personal prejudice enter the thinking ("the market should not do this", or "I'll double my positions I'm so sure of this") as any rally must be suspect after a certain number of days, as consolidation is healthy for a growing market.

And from a long term trader, a CPA, wrote to talk about Friday and what he learned:

I just wanted to thank you for your service. By giving me tools and knowledge of the market to use, this morning I was able to avoid panic selling my June OEX $435 put for a 40% loss. I purchased late yesterday using the support calculations. I did not want to hold over the weekend. I had hoped for a quick 10 to 25% profit in one day and I kept my investment low due to the risk. Needless to say I was surprised by the jobs report. With the big open, I recalculated the DOW and OEX pivot point around 9:50am. This turned out to be my savior as the Thursday night alert numbers were obsolete and did not reflect the true S2 as the market had reversed big time around 9:55 or so. I sold when it hit the S2 around 435 and made a profit of 9%. Not quite my target, but better than a 40% loss.


The market was perfectly trade game for us Friday, with the June 445 call easily bought and sold for $2.00 per contract profits :) Many day traders traded the range with the June 630P by doing exactly what our CPA, KH, wrote above.

These OEX trades bought on the new calculation, and sold on it, for a quick $1.50 on the June 630P. We hold a hedge put, and have two new trades for the day, and new Dow projections.

Will Rogers: " I am not nearly so concerned about the return on my capital and I am the return of my capital"

Friday, June 5, 2009

1. Each of you will trade slightly differently than the other person. You are trying to learn both a system with logic, and the art of the emotion of the option trade.

2. All the information you need to trade is in the daily alert, and in fact, this can be used for your thinking about ETF's and the stock market in general. Our pivot point calculator works with all stocks and indices.

3. Study our videos online (full time subscribers, not trial) and learn the nuances of what Floyd does. We have many new videos online for your review.

4. To learn how to trade any option "for a living" takes practice. Take the time to study our work, ask questions, and truly learn a trade. A great % of our Level 3 and Advanced Mentoring students trade full time for a living.

_____________________________

Imagine former President Bush or "Shooter" Cheney making a speech to the Muslim world. I can envision a Saturday Night Live show alone on the arrogance, stupidity and "mightier than thou" approach.

President Obama is smartly trying to distance our history of "aggressor" to a 1/3 of the world, and working on a global "economy" approach. Personally, I believe the type of speech Obama gave in Cairo is unifying, and not "the axis of evil" babble that created so much world hate. Just gaining more of a world order that believes the U.S. is not a bunch of fat, arrogant Hummer drivers is a key focus to our re-development as a nation. I was impressed by our efforts to unify with the world, and recognize that not all are our enemies, and that we can easily create them, as we have been. This will in the end be good for our stock market, as we rebuild world confidence.

But my favorite....the Chinese are buying the Hummer, planning to sell it to the growing China middle class:) Ahh, the lessons we never learn.

With this said....

The government, we know, is borrowing more money than can be conceived. Treasuries are falling hard because of this, as they should. Worldwide we are seeing downgrading of government credit ratings, and it's likely our own debt could be downgraded. Geitner has been selling China, assuring our largest investor we are "safe" and will become the buyer of last resorts for bonds. What the government really said here: we will begin to monetize government debt.

This is happening because of some simple facts:

1. The spread between 2 and 10 year bond yields was a whopping 2.75%, which simply says investors are unwilling to buy long term debt.

2. The IMF estimates government debt to be be 97.5% of GDP in 2010.

3. The Chinese are buying less of our bonds

4. The Chinese are the largest foreign holder of American debt, which this year has shown the worst loss since 1977, down 5.1%.

Economists will argue that the rise in yields shows inflation is likely. Being a "Floydian Economist" I'd guess the world is just worried to hell about our debt, and their own. People are saving more, thusly holding us to recession.

If we have interest rate increases during what some now call deflation it could further depress economic activity.

This serious stuff is all fact. How we now interpret this fact is what is key, both as a nation, and as we view the stock market.

Thursday, June 4, 2009

A Lost Decade of Investing

We have had a lost decade of investing. It is important to lead with this as we remember that as the Dow hit 7750 last fall we thought the world had ended, and as it hit 6400 months later that the great depression would never end. Now as the market moves back towards 9000, despite yesterday's setback, "all is better."

There is no doubt we've lost a decade in investing. Yesterday's consolidation was healthy, and well timed, as the market moves to actually be UP for the year are nonsensical. We remain concerned enough about the USD, our rising and printable debt, reassurances to other countries, and use of central banks. The following article might help us see how the shenanigans continue to "control wealth to the few," the opposite of what the "Obama anti socialists" are saying, as we do not shift the wealth of our nation to an equilibrium we allow only the few to prosper

http://mobile2.wsj.com/device/article.php?CALL_URL=http://online.wsj.com/article/SB124396078596677535.html?

Yesterday by 3 p.m. the Dow had hit a theoretical low of 8562. Note that 8550 was a former resistance line for us, and that yesterday we suggested former support lines would become resistance in any downturn, and vice versa as we are establishing new Dow channels.

I personally re-calculated the Dow (not the OEX) at 10.30 a.m. and 1.45 p.m. yesterday. I used the calculator on the website that asks for the Close (of the PRIOR day) and HIGH and LOW of the current day, to that minute.

To re-calculate simply find this information at your brokerage, enter it into the calculator, and use the new S/R and pivot to reflect the DAY itself, in CONJUNCTION with the Dow projections that you see each day.

As an example, I day traded the June420P and June430P both on watching the market move back to the pivot slightly and then move to s1, and s1 I recalculated again at 1.45 p.m to find that the downturn hadn't even hit s1 on the re-calculation.

What is important for traders to learn is this:

1. Watch futures to see the bias.

2. Study the S/R and pivot at open and, if necessary, recalculate to see the Dow or OEX for the day, in conjunction with our longer term projections. They help you now when to buy and sell.

3. Set rules for what price you will pay, whether you are day trading or longer term holding, and hold to them. Remember that option trading is the "sum of the parts", meaning the success comes from multiple trades, and not all the investments to a single single, using effective risk/reward for your investment.

Wednesday, June 3, 2009

Ripe For a Fall

Stocks just rallied to three month highs and many believe “it’s a new bull market," with strong consideration given to the new “S&P 500 is trading above it’s 200 day moving average."

All good and true, and America is saving much more (which will prolong the recession)

I see the 200-Day Moving Average as nothing more than a support or resistance line being broken.

Many floor traders utilize a 20th month exponential moving average and chart it in to the S&P 500. These chartists believe that when the S&P 500 is trading BELOW the 20 month exponential moving average (EMA) it’s a bear market.
Studied this way, even with this nice little rally we’ve all become euphoric about, it’s still a bear market, and the end may not have been completed.

This is commentary to share that all is NOT as it appears, and we may be ripe for a fall. We think this "fall" may be two tier, with a slighter consolidation first, and even higher moves, before deeper downside, but in the meantime....


Floyd, nice trade on the June445C. Got in at 5.00 and sold to 6.30. Learning from you I also began to "watch" a put, and I day traded the June430P from 6.50 to 7.50 for a buck a contract twice yesterday while the market just flat lined along. Level 3 service has been extraordinary for me. I'm 9 months into it and day trading positions you don't even show in the alert, all on the Dow projections, and learning to "love an option" as you teach.

Thanks for your patience.
MKL, Alberta, Canada


Floyd, interesting day yesterday. Made a buck on the call, and just took a second buy on the put. I'm 11 for 13 winners. I'm amazed the market is staying up, aren't you?

John in LA

Yesterday's flat lining for many hours, with repeated run ups to 8827 (8867 our "Greed top projection") showed what chartists see as a "waning bias" and a topping. Study our Dow projections today carefully, as we've added what could be a "two time" consolidation. Calls may have more run, and there may be more upside. Just take prudent risk.

Tuesday, June 2, 2009

Help Me Out Here Floyd!

Trader BD said it best to me yesterday:

"I don't get it. Oil goes up and stocks follow? The cost of US debt is going up and stocks go up? The largest car manufacturer goes bankrupt and stocks go up?
WTF!!
Help me out here Floyd. Am I wrong in my thinking that when the cost of goods goes up, oil, that's a good thing for consumers that do not have the same access to credit that they did a year ago, if they even have a job.
This is Fu000 Up!!"


Trader BD said it well. As GM bankrupts and our debt soars the bulls run the market right to our Dow tops. Truly no chartist could begin to predict what in the human emotion has taken over to bring this much optimism to a market.

Fundamentals are out the window. The market goes up, and Gold hits all time highs. The market goes up and oil is soaring By 1.30 p.m. the S&P 500 had moved above its 200 day moving average.

So a lesson:

“If there is one lesson we have learned from the last four months of 2008 it is that the world financial markets are more highly correlated than anyone could have imagined.
The ability to hide behind any model that used a Gaussian copula function was deemed unwise as securities with previously slight or even negative correlations moved in tandem. Whether personal or financial, relationships tend to break down under duress.
Fall 2008 was the stress test for the global financial architecture, and that structure almost failed. Even though finance is based on mathematics it became very clear that human emotion had a vital part in deciding asset values”

~Andrew Busch

For the market to shift bias we need a 250 point or greater downturn in a day that holds; after this occurs the average downturn in the last 40 cycles has been 564 points from the highest high down. This would put the market back at the 8236 ground, and would be healthy in consolidation, and what many of us see as overdue. However, there is greater risk for even greater downturn as the market reaches an extreme count.

Bulls may have the strength and momentum to take the market to 8950, adjusting these ratios.

Call traders willing to buy above prior day close were the only signal traders out for yesterday, as we own a put, and have made second buys and are in the waiting game. This is where it's important to recognize that our alert shows SEVERAL different ways to enter a trade, and you should read the instructions carefully. OXBFI June 445 C, for example, was not available for those of us willing to only pay prior day close or below, but WAS available for many happy traders with OEX that paid 3.50 to 3.90 for opening entry, and sold to highs of over 6.00.

It's not often we're early on a signal. We saw calls as overbought and own a put losing value. Let's hold it as a hedge, and just watch this market. It's too erratic to be healthy and that is always to the advantage of the option trader.
..
Bloomberg has many articles on U.S. Debt, and a world currency, and the value of Treasuries. All is NOT as it appears, and our "watching" the market while we trade is key.

Many chartists, in addition to the Point and Figure supply and demand chartist Floyd, see a contracting triangle. Volume often begins to decrease, and "flat lining" occurring in the "trade range building" last week.
Usually in a contracting triangle when the pressure builds there is sudden movement, and it's equal to the largest up or down moves that occur.
Bottom Line: we could have a great deal of volatility this month, good for us, if we can read it right:)

Monday, June 1, 2009

Day Traders Rewarded

The first trading day in June the market has been up 8 of the last 10 years. Judging from Friday's last 4 minute end of day 100 point run up, which may well have been shorts covering their positions, we remain with a count of 6 to the call. But, today GM declares bankruptcy. How will the market, and the American people, "take this?"

Do the American people understand this about unemployment? http://www.bloomberg.com/apps/news?pid=20601087&sid=aSc829RcWzSc&refer=home

Day traders were rewarded with our call recommendation Friday during the whipsaw market, and settled for 25% to 30% profits. First or second buys have been made on our June410Put, and we now have a stop loss of Friday of this week on this trade, with the second buy.

Our Dow projections are new for the week. My trading thoughts this week are influenced by what I see as a market ripe for more downturn, to perhaps 7950, or SPX at 800, but the bulls are fighting hard.

Our count projections were too "shifty" last week, as the market has created almost a new "trade range" from 8250 to 8550.

Thusly, we'll open trading this week with a signal to an OTM call, and hold our hedge put trade. The market is showing every sign of becoming overextended.