A Dead Man's Flip of the Coin

Typically the Monday before option expiry Friday the Dow has been up 23 of the last 28 years, with 2007 the first loss in 7 years.

And with the exhaustive gaps we saw yesterday, with highs to 9876 by mid morning, we provided a recalculation of the support and resistance and pivot lines. Subscriber Jurgen, new to our service, wrote yesterday after reviewing the manual and videos, and "confused" on how we are to use support and resistance.
Let's use yesterday as an example:

1. When we re-calculated the pivot point was 9775.73. After the initial run up, which went to R1 on the morning calculation, the market moved back to this re-calculated pivot and did little.
The key here is the market must remain below or above the pivot to show a clear bias.
2. By noon the market had hit the re-calculated R1, which was 9823.40. If a trader was holding calls they had bought this would be a key time to consider, if profitable, selling them, as the next step in s2 and the market often hesitates. Many of the rules on S/R are written right below in our daily alert.
3. S1 yesterday did not hold. Day traders may have bought a put at that time, as they saw the hesitancy, and waited to sell if the market moved to the pivot, or down to s1. Sure enough, this occurred, the market dropped right to the re-calculated s1 at 9745.71, and puts could have been profitable for day traders.

A common rule we often teach for regular trading is: "Buy at s2, sell at r2, and buy at r2, sell at s2." This rule is for the longer range trader, and note that recent massive moves in the market of over 100 points often in an hour make this type of trading tougher.

There are NO hard and fast rules on how to use S/R, and this is the hardest thing we teach. Support simply means that this is an area the market has hesitated before, as does resistance. When the market hesitates it is a "trigger" to the floor traders, and we see action of either "shift of bias" or stronger upside or downside when we hit core support and resistance lines.

Here's an example of where we used support/resistance and our Dow projections for maximum profits. This was our new signal for yesterday:
OEBKT NOV 21 2009 500.00 CALL

"Follow futures, and if futures are UP 50 points buy this at 'market' and sell to 9876."

Futures were up, and traders bought at opening and were able to sell for over a 1.00 per contract profits within hours. This is also a position that can now be "held," as you'll see in our instructions below.

The value of support and resistance is that we know certain things occur then normally, and can often take advantage of buys and sells where we know the market might "hesitate."

Study our videos on support and resistance, and use them as "fluid" tools. Re-calculate, or watch for our Twitter, if the market really moves, as you can begin to see many patterns emerge.


It is a dead man's flip of the coin if the market will hit 9950 to 10,000. The bulls are surely trying, and resistance seems strong. There is good news, but really, enough good news?
We feel that is part of how Wall Street is thinking, and where the hesitancy is. If we hedge, somewhere we will lose. We'll hold with the call for a new trade and list a put for risk traders that want to hold for next week.

Big Talkers

The market flat lined just enough to bore everyone, up until 3 p.m. 9780 as a high, and 9635 as a low, but options trading tightly.

In periods day traders were able to eke out tight profits, or break even. We continue to hold puts.
The market will clearly either break resistance lines shortly and hit 9950, or break down again. We are in a waiting game.

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I especially love the "big talkers": Texas GOP Lawmakers Who Voted Against Recovery Act Now Beg For Stimulus Funds
And I'm proud to be an American, that has allowed our own dollar to have little value: http://www.breitbart.com/article.php?id=CNG.e272eaa74dccc30f21c6ff7638b0f37b.461&show_article=1

It is important to note that Gold is 1042.00 while the USD falls. While world currency is seriously being discussed.
Often smart negotiators do not win, but look to ways in which the compromise benefits them.

World Currency Discussed

The USD fell, and a world currency was discussed, and the stock market went up. This is an important statement.

What a profitable day again yesterday! Traders took entry to our higher risk OEBKD call and locked in .80 profits, on same day trades, with minimal risk. We stop lossed our puts. The market is so irrational that we saw 9814 highs to 9561 lows in a single day, and came very close again to the market tops that stopped upside last time.

We hesitate, as always, as we see market tops. Note in our Dow projections that Roubini's concern on "too fast a run up", and Floyd's ongoing concern that consolidations do not last long enough to lock profits and keep a healthy market; we're now listing in our Dow projections market tops we might reach before the same free fall to 9376, or below.
Stocks and commodities rose yesterday, get this, as Australia raised interest rates. This is "evidence" to their economists that the recession is slowing, and recovery is beginning.

Just a few short years ago when Emperor Bush was commanding I remember arguments about "not having even entered a recession." To Floydian thinking, we've been through TWO recessions, the first around Bush, then streamlined to goosefat as the market moved up around Wall Street, only to come crashing down.

Bloomberg has sued the U.S to identify companies that received loans from the central bank, and by now you've all read the Gov't is accused of not telling us how bad it really was when the SECOND stimulus of 700+ billion came in the early Obama weeks. Please don't forget the 585 billion that Paulson, Cheney and boys rammed through Congress, "the end of the world" last Sept and October.

Obama is now struggling with an unemployment rate at 10%, and smart economists believe this unemployment rate will stay this high, through company leanings and less business, unless a THIRD stimulus (still called the "second" stimulus) is introduced to the American people within 6 months.

My favorite is the new bank game called “re-emic”, which stands for “reseecuritization of real estate mortgages conduits." Floyd Translation: The banks have taken more toxic assets they have in real estate and repackaged them to get a higher “security rating.” Sigh. Jim Rogers, famed trader, sees “inflation as already worse than the government is seeing it and hyperinflation occurring over the next few years."

We suggest market tops will lead to another potential overall 586 point overall drop to the market, before returning to upside. Yet again we believe consolidations too short, and upside quite euphoric.

Happy Days Are Here Again

Happy Days are here again.

-OXBJN OEX.X OCT 2009 470.0000 CALL we bought at 12.78 last week, and sold to highs of 16.20 by 3 p.m. on Monday, for a great start to the week.
We had issued new Dow projections showing a 9679 resistance, and twittered out new Dow calculations at 11 a.m. that showed R2 at 9619, and r3 and 9649. Astute traders saw our new calculations, and the upsurge, and most held right to our high market sell at r2.

A comment from a subscriber: Wow these ITM calls really move in price. I bought 4 contracts last week as close to 9376 as I could get for 11.50. Sold today - limit order while I was in a meeting for 16.00. I am still sitting on some losing OTM calls. They only moved a few cents today while the ITM calls moved a couple dollars. I think I saw a lesson in this one. I am assuming we went with the ITM call for the price movement since we were at a turn around point in the market. I see how we can profit on the movement without waiting for bias to increase prices on the OTM issues. Is that a fair observation?" Floydian comment: ITM works very well in tight ranges, ATM at other times, and OTM can be hugely lucrative for less risk at certain times. This was one of those times for an ITM call!


However, everything is NOT good, and the market upsurge may have been an exhaustive gap up, with a potential downside to surprise us all. There's enough talk about it, and there should be:


First, some information:

1. Treasury Yields Drop to Lowest Since May as Recovery Falters

http://www.bloomberg.com/apps/news?pid=email_en&sid=abdGwSy.WPGI

2.This was in Bloomberg on Sunday, showing the "hope of investors":
http://www.marketwatch.com/story/us-stocks-await-the-earnings-cavalry-2009-10-03

3. This may soon become Floyd's favorite quote of misinformation:

· “The DIF (Deposit Insurance Fund) balance going negative doesn’t mean we’ve run out of money”, said FDIC Chairman Sheila Barr told reporters last week. Of course, one might wonder why this would be said when the FDIC is asking the FED to fund it, and that the protection of our bank deposits now may require this. Think long term. The failure of banks began many years ago; we are now just paying for our own GREED and lack of oversight.
4. · Historically MACD gives strong buy signals at this time of year, and many option and stock services use this as a “buy signal”. My comment on MACD, which I do watch at this time of year, is that there appears to suddenly be a loss of momentum. Follow this on daily and weekly charts to see the differance, and remember it means different things to us as short-term traders vs. those that are watching MACD also for buy signals. We only track MACD, and use PnF charts for all of our final decisions.

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Next, I will cry for and with you:

This is so sad. My favorite journalist, Matt Taibbi, writes another scathing article for Rolling Stone Magazine, the third to gain world wide attention as he exposes the Wall Street that collapsed.
Wall Street's Naked Swindle

A scheme to sell fake stocks helped kill Bear Sterns and Lehman Brothers — exposing the counterfeit nature of our entire economy. By Matt Taibbi
Find this article today on the web. Taibbi correctly exposes how the game has been played, and sadly shows us how there are so many regulating bodies that none have been organized to solve the situation.
I find Taibbi a frightening journalist. His facts have been checked, he gains much national TV interview exposure, but continues to work for Rolling Stone Magazine vs. a top news organization, because he will "not be muzzled".

Here he is on YouTube: http://www.youtube.com/watch?v=OqZUbe9KIMs

It leaves me naked, with no weapons, and an army advancing. I'm disgusted, discouraged, saddened for society, and angry.


5. Roubini Says Stocks Have Risen ‘Too Much, Too Soon, Too Fast’

Oct. 4 (Bloomberg) -- New York University Professor Nouriel Roubini, who accurately predicted the financial crisis, said stock and commodity markets may drop in coming months as the gradual pace of the economic recovery disappoints investors.

“Markets have gone up too much, too soon, too fast,” Roubini said in an interview in Istanbul yesterday. “I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U- shaped. That might be in the fourth quarter or the first quarter of next year.”

Stocks have surged around the world in the past six months as evidence mounts that the economy is emerging from its deepest recession since the 1930s. The Standard & Poor’s 500 Index has soared 51 percent from a 12-year low in March while Europe’s Dow Jones Stoxx 600 is up 48 percent. The euphoria contrasts with the cautious tone of Group of Seven policy makers, who said after their meeting in Istanbul yesterday that prospects for growth “remain fragile.”

“The real economy is barely recovering while markets are going this way,” Roubini said. If growth doesn’t rebound rapidly, “eventually markets are going to flatten out and correct to valuations that are justified. I see a growing gap between what markets are doing and the weaker real economic activities.”

‘Anemic’ Recovery

The International Monetary Fund predicts the global economy will expand 3.1 percent in 2010, led by growth in Asia, after a 1.1 percent contraction this year. That is still “anemic” and “very weak,” Roubini said.

U.S. stocks fell last week after manufacturing expanded less than anticipated and unemployment climbed to a 26-year high, fueling concern the economy is rebounding more slowly than forecast.

Gains in the S&P 500 have pushed valuations in the index to more than 19 times reported operating profits from the past year, data compiled by Bloomberg show. That’s near the most expensive level since 2004.

The performance of the U.S. economy is probably more sluggish than reflected in stock markets, risking a correction in equities, Nobel Prize-winning economist Michael Spence said last month. U.S. stock-market investors have “over processed” the stabilization of growth in the world’s largest economy, Spence said.

Creating Bubbles

The global equity rally has added about $20.1 trillion to the value of stocks worldwide since this year’s low on March 9. Governments have poured about $2 trillion of stimulus into the global economy while central banks have cut interest rates to close to zero in efforts to revive growth.

“In the short run we need monetary and fiscal stimulus to avoid another tipping point and to avoid deflation, but now this easy money has already started to create asset bubbles in equities, commodities, credit and emerging markets,” Roubini said. “For the sake of achieving growth stability again and avoiding deflation, we may be planting the seeds of the next cycle of financial instability.”

We Could Debate This Forever

Those that follow MACD buy signals should begin watching. Historically divergences occur this time of year and some stocks are a buy for the next historically strong 6 months of the market.

However, we'll be discussing this week what October could bring, either a run up to 10,700, or a run down to under 9000. That much is at stake.

Friday unemployment went from 9.7 to 9.8% and the investing public used this, and the ISM report, to continue sell off. The market moves Friday hit highs of 9565 and lows of 9390. Note 9376 in the past was a strong support and resistance line, and the strength of the turnaround from the morning bottom Friday has some chartists believing that this bottom will hold.

Of course, we could debate this forever.

I Was Nervous

I was nervous the night before last. I had watched the market moves all day made money, and I simply was unsure if yesterday would try a second bottom test. Hence, we had no open put signal and missed a good profit.
An intraday alert went out at the 9550 crossing yesterday for an ITM call, with a high risk attached, as the market could still go to our 9376 bottom.

We're not convinced yet that October will be filled with surprises. What had appeared 10,700 on a bull run early year end run up to the Fibonnacci retracement could actually be charted. I could prove it to myself.
At the same time, I've not "understood" the run up, and felt nervous our euphoria would lead to a bubble burst.

I'm still studying key dates, and economic indicators and am not ready to project beyond our current Dow projections. Read them carefully. They may now actually reverse in an uptrend with a shorter top.


And to get smart:

Volcker: Obama's Reforms Maintain 'Too Big To Fail'
URL: http://www.rollingstone.com/politics/story/30219673/the_lie_machine

And, from the boy that started it all, read with a cavalier attitude as Bubbles Greenspan, who helped create this mess, now speaks:


Greenspan Says U.S. Will Need to Tighten Credit, Raise Taxes

Oct. 1 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said the U.S. will have to both tighten credit and raise taxes as the economy pulls out of the worst recession since the 1930s.

“The presumption that we’re going to be able to resolve this without significant increases in taxes is unrealistic,” Greenspan, 83, said in an interview with Bloomberg Television yesterday.

The budget deficit this year is forecast to widen to $1.6 trillion, boosted in part by President Barack Obama’s $787 billion stimulus package. Between 2010 and 2019, deficits will total $7.1 trillion, according to the Congressional Budget Office.

Greenspan also said the Fed will have to withdraw money from the financial system to avoid inflation. The central bank has doubled its balance sheet over the last year to $2.2 billion as it battled the recession that began in December 2007.

The economy will grow at a 3 percent to 4 percent annual pace in the next six months before slowing in 2010, Greenspan predicted. Growth will be aided by a surge in the stock market and inventory restocking by companies. Share prices are likely to “flatten out, even though earnings are doing very well.”

The Standard & Poor’s 500 Index has jumped 56 percent from its low for the year on March 9, an ascent that’s had a “very positive” impact on the economy, Greenspan added. The index fell 0.3 percent yesterday to 1,057.08.

Job Cuts

The world’s largest economy shrank at a 0.7 percent annual rate from April through June, the best performance in more than a year. An unexpected decline in a gauge of business activity released yesterday, along with a private report showing employers cut more jobs than forecast, indicate a recovery may be slow to take hold.

Greenspan, who was appointed Fed chairman in 1987 by President Ronald Reagan and served until January 2006, praised the steps has taken by his successor, Ben S. Bernanke, to help pull the economy out of recession.

“The Fed has done a splendid job,” he said.

Still, the size of the Fed’s balance sheet is “not sustainable” and will eventually have to be reduced to “something just north of $1 trillion,” he said.

“My concern is that legislation or other actions on the part of Congress may prevent” the Fed from withdrawing the stimulus, Greenspan said. “Unless we sterilize or unwind the big monetary base we’ve built up, two, three years out inflation really begins to take hold.”

Representative Ron Paul of Texas, a Republican, is leading an effort in Congress to repeal the central bank’s immunity to audits of monetary policy.

Consumption Tax

Greenspan said that the odds are growing that the U.S. will have to enact some form of consumption tax to help reduce the federal budget deficit.

Obama has pledged to bring down the deficit without raising taxes on middle-income Americans. The CBO estimates that this year’s budget shortfall will equal 11.2 percent of the economy, the most since World War II.

Greenspan said he is “quite impressed” by Obama and called him “a very intelligent man.”

“But I don’t think he is sufficiently in control of a very serious budget problem,” the former Fed chief said.

Greenspan said that an overhaul of financial regulations is needed. Treasury Secretary Timothy Geithner has proposed the most sweeping changes to the rules governing Wall Street in seven decades, including giving the Fed authority to monitor risk across the financial system while stripping it of its consumer-protection role.

‘Broke Down’

“It’s very obvious that a lot of things which were in place in the regulatory area in the markets failed,” Greenspan said. “It broke down and it’s got to be fixed.”

Bernanke has opposed ceding the central bank’s power to regulate the safety of financial products to a new agency. Greenspan, for his part, called such power “peripheral” to the Fed’s main role.

He also cautioned against responding to the financial crisis with excessive regulation. While agreeing that the government should have a say on executive compensation in the institutions that are receiving government aid, Greenspan voiced wariness about extending that control to other banks.

“You have to be careful here because this should be a relationship between shareholders, directors and executives,” he said.

And for more fun:
http://www.wsj.com/article/SB125434960666354035.html?mod=WSJ_hpp_sections_markets

Now, Let Me Yell At You - It Will Not Just "Come to You"

At the opening the market dropped to 9558, right at our first theoretical Dow low, and all puts could have been sold profitably, to up to 40% depending upon issue and time of buy.
Call buyers were also rewarded on the Oct500C buying on the downturn, and selling to .60 profits within an hour. The position was later available for tight day trades as the market hesitated.

This is a good example for traders of always having a sell order in. We went right to our 9550 downturn at opening, and all puts and calls hit their profits. By 3 p.m., the two way trades we emphasized had shifted focus again, and the market began moving down. Astute traders had bought the puts again on the upturn, and sold again on the downturn after 3 p.m.


Today I'll share an example of how I personally trade, as last Thursday and Friday were excellent examples of how one could "day trade" regular stock options that one owns, and index options.

If you'll remember Friday we moved from a 9776 theoretical Dow top to a 9600 low. First, I sold an open put I had from Thursday, that I had already sold 2/3 of profitably, selling the final 1/3 of my ITM issue at 30% profits.
As the market hit bottoms and I sold this issue I bought the October 500 Call at 3.00 and sold later in the day for 3.90. So ...I had two profitable trades and was out of the indices for the week, which was my goal.

At www.bluechipoptions.com we also own a stock option on McDonalds. This was a signal given months ago, MCDAK McDonalds January 2010 55.00 call. Traders have made two buys on this call, and currently own it at 3.10 average price. This is a long term call LEAP option that we've been holding. However, I saw the issue drop dramatically at opening the day prior and hit lows of 2.70. So, in a separate trade from my current holding I bought 20 MCDAK at 2.70 last Thursday. Sure enough, the market rebounded Friday and I was able to sell my 20 MCDAK at 3.60, pocketing $1800.00 in a day trade on an issue I own.

I was trading all day Friday, and this was key, as I day traded because of the volatility of the market. However, for those of you saying "but I could not be online," I'll share that I did ALL of this trading sitting by the pool on an iPhone, checking periodically.
The important point is not "that I won," and I am giving you a testimonial. The importance is that I was "on a run" and I played all I could. Near the end of the day I had "the itch" to buy a put for Monday's opening, and even though it became our signal for Monday morning, I did not let myself buy the issue as the close of the market day, because I was trying to control my "greed." I could sense it building, so I simply stopped myself.

Now, let me yell at you. Many of our traders make a living off OEXOptions.com, many are stockbrokers and professionals, and as many are individual investors, with people from all over the world. In fact, over 28% of our client base subscribers from India. Over 15% from Australia.

My point is: GET to work. Many of you do not utilize our manual, or the many videos on the website. I can tell by the stats on our work and website, and I'm constantly surprised by how few of our paying subscribers really utilize the videos on our websites, or study our calculation worksheets, or even write me. It's part of my thinking that I've been outlining "we are fucked," and is said to all of us. If you intend to do well trading options, become an expert.

Study. Journal. Read the manual. Watch the videos. ASK ME QUESTIONS!

There is an old rule of 80/20. Be in the 20. Work to learn to trade. It will not just "come to you."