The Intellect of Our Market

At times it's amusing to watch the intellect of our market as it follows support and resistance lines. Bulls do not want to give up the fight, and bears have shown every technical indicator for more downside.

The morning opened with durable goods up, and a jobless rate down that assumes firings are over. This lifted the market just enough for traders to gain entry to the OXBRB June410P, as low as 7.00 and far below prior day close, and sell to highs of 10.10 within one hour. The day showed tops and bottoms that you should carefully review against the Dow projections.

Trader IAG explains:

"Floyd,

Futures were tight and I put an order in at 7.40 on the 410 pre market and just waited. It filled at opening. I put an order in to sell at 9.90 and it sold by 10.30. By the way, this was over 6k of profit in an hour, and I was simply stunned.

I've been doing well with this, after the larger February loss I had when I broke your rules. I re-calculated the Dow early and simply saw I had traded r1 buy to an s1 sell.

I am controlling my emotions even more now."

And this from a long term subscriber who was just fired:

"Hi Floyd,

Well, I have just recently joined the ranks of the unemployed for the first time in my 59 years of life..I am now a statistic as a result of the economy.

Notwithstanding this fact, I do believe when one door closes another will soon be opened, and I will be diligently preparing for this eventuality.

Nevertheless, due to a series of events over the past couple of years my finances have been somewhat under pressure, and combined with this most recent event my budget dictates that I discontinue my subscription to your excellent service...at least temporarily. It is with deep regret that I request that you stop my subscription at the end of this current cycle.

I want to take this opportunity to thank you for making your work available to others so that others' lives can be made better. I have certainly benefited from your service and I will look forward to the time when I can renew my membership."

This subscriber is staying with us gratis for 90 days, and I printed his comments because it is critical that subscribers recognize that much of the teaching of to "think about life", or "read the market" that you read in this commentary is critically important to how you think about yourself as you trade. Be sure and truly explore ALL the areas of our website. You'll be surprised how much there is for you there.

Remember, every one of us is always in a crisis, coming out of a crisis, or headed for a crisis. This was a very important sentence yesterday. This affects your trading. We teach you how to think outside of the "circles" that you create.

Let's Start With Grandpa

Let's start with Grandpa. If you remember, I ended the commentary yesterday with the story about the lady with the suicide in the family. The "mental illness" stigma that has surrounded her family from this suicide, and how it has affected her, long in to her adult life, are prime examples of FALSE FACTS and how they can influence behavior, and in our case, the market.

This woman recently found out the true fact: that her great grandfather had a stroke, at 59 ( a ripe old age at that time) and killed himself to not be a burden to the family. The son, her Grandfather, had been an young adult member of the family that dealt with this in the mid 1850's. The fact is that there WAS NO STIGMA. No emotional problems, no deep seated schizophrenia, and this family was able to build into their family drama that "Great Gramps" had committed suicide.

All of us have this in our families, in our lives, and our emotions in trading are "emoted" by the crisis we are currently in, where in the cycle, and how we are handling it.

Remember, every one of us is always in a crisis, coming out of a crisis, or headed for a crisis.

The lady with the illness that permeated and stigmatized her family for years must have been affected in some way by this "false fact," and that she could somehow be "affected."

Think of how, and what, not why, as you trade. Why is not a good question.

Traders were rewarded yesterday with profits on both puts that had been recommended. The June 420P, for example, was available for as low as 8.80, below prior day close, and sold to highs of 12.30 by 2.30 p.m! The June 385P, on two buys, was also profitable, leaving us winning three for three so far this week, and staying close within our Dow projections.

You've Made Me a Trader

Memorial Day week the Dow is down 7 of the last 12, and up 12 straight from 1984 to 1995.

We saw "perfect" trading yesterday. Trader MCE said it best:

"1. I placed a limit order on OXBFD, the recommended call, today pre-market at 9.20 or less, and it filled at opening at 8.40.

2. I made some coffee and recalculated the Dow, and compared them to your projections overall.

3. I put the sell order in at 13.40, your top, thinking it would be right near r2, and it filled. Floyd, I had 10 contracts, and made a quick $5000.00, enough to pay for Level 3 for the year, and have money left.

4. Next I bought the put at r2, which was 2.30, for the OEWRQ June385Put. I made just one buy. You and I also emailed and you told me I could have also bought OXBRD The June 420P instead. Part of learning the count calculations has helped me understand the "mixed signals" and how a top could occur. I could not have said this 4 months ago, and would have thought that all the reasons the market went up today was because of certain news, when in fact it just triggered what was already going to happen, with your Dow projections.

You've made me a trader"

________________"


Here's Floydian logic on support and resistance:

1. It is perceived as important by the trader, and the floor, so it is important.

2. The longer the time frame (time spent at the support or resistance line), the more significant it is.

3. What is support may become resistance, and vice versa.

4. S/R defines price or action zones, not the exact price to buy/sell, but a "range"

5. Use of Open/High/Low/Close as indicators is more accurate than the "swing" areas around support and resistance. Study prior day facts, or recalculate once during the trading day.

6. Watch the market breathe. Sit back and simply note where the market moves, around support and resistance

Trader MCE simply followed the rules for his profitable return, and did not let "too much evidence accumulate"

And lastly, a bit of Floydian Therapy: http://www.oexoptions.com/pages/FloydianTherapy.html

A client shared with me that her Grandfather's Father had committed suicide many years ago. The Grandfather saw it. This affected the Grandfather and helped make him the volatile and angry man he was.

The Grandfather told his daughters about his father's suicide, and they in turn told their children. An entire "mental illness" was created from the Grandfather's suicide. Many members of this family for years have believed that much mental illness "runs in the family."

I'll ask you as traders: How does this affect a trader that I am working with, and her thinking? With what she knows, as an adult, does this information (the dark past of all families) affect her trading? Or could it?

Let me know your thoughts. I'll blog them in and "tell you the rest of this story" as the week progresses

Understanding your emotions is more important than the signal, as it is "being outside of yourself" to trade that makes you effective.

You Do Not Become a Doctor in a Few Weeks

Friday was a classic day for profits. Here's a perfect testimonial from JE on how he traded:

Floyd. 6 months into level 3 and I am really getting it.

Here's what I did Friday:

1. I watched futures, which moved around a lot, and waited until 10.30 and recalculated the Dow. I then bought 20 contracts of the June 420 Call at 9.30.

2. I studied the new Dow recalculations, watched the option, and within three hours the call hit r1, when I sold at 11.10. The option went up to 11.20 for the day, but I profited, net of commissions, $3600.00.

What stood out to me is that I was calm, and simply bought s1, sold at r1 when I saw the market was holding right around the 8350 Dow projection line you had and the 8250 also.

This trader took emotions out, and followed simple rules. He bought at "best buy" (or discount near a retracement) and sold for good profits, to close out by before the holiday weekend.

Another trader, MDL, wrote:

"Thanks for the two weeks of Dow projections with your regular daily updates written within, it helped me see just how to use these projections to see where the market will go, and it's a blast to listen to the "talking heads" explain the "reason" after, when it's just what you call "normal market cycling."

Learning to trade options is a serious skill. I always smile when subscribers share with me that "it's hard" to "learn", and it is, as where else can you earn 20 to 35% without leaving your desk, and with a controlled risk.

And, even better news, traders were able to take nice day trade profits on the June 385 Put also on Friday as the market gapped down at the end of day, and in tight whipsaw throughout the day.

Trading over 30 years I am still amazed when someone tells me they've been paper trading a few weeks and it's not working:) It takes time to truly learn how to trade index options, and is a learned skill.

You do not become a Dr. in a few weeks :)

Traders: if you have questions don't hesitate to email Floyd personally at any time at info@oexoptions.com

Consumer Confidence comes out at 10 a.m., and is an indicator that will be "read" for the mood of the public with more scrutiny right now.

One in every two entrepreneurs has dyslexia. Society viewed dyslexia for years as a "motor coordination" issue and a form of retardation, all the time while businesses were being built by dyslexics.

Things are NOT as they appear.

Presumptions

The Friday before Memorial Day tends to be lackluster with light trading. There is also typically a bit of rally thinking as the market closes down for the holiday.

The market is closed on Monday, and our next alert will be sent Monday in advance of 5/26 opening.

What occurred on 5/21 added to our Dow projections for more downturn, as while the Dow went beyond its 5/8 high, both the OEX and the S&P 500 did not, and that helped lead to the bearish divergence that prompted the downside we expected.

Yesterday, we saw a healthy consolidation, more downside to put a bit of reality out to our happy investors that have seen such run up, and begun to believe it to be well. As we recalculated the Dow after the first hour sell off we saw s1 at 8334.98, and s2 8247.93 By 11.30 a.m. the market had just touched s2. By 2 p.m. it hit s3. Traders that held partials on the OXBRD June420P were rewarded with a 45% rise from prior day close, returning investors over 100% on this put. New signals to the June 385P were available on the gap up and whipsaw as low as 3.40, with sales to 5.00, but most traders didn't enter on this wild swing to start the day, and with futures dramatically down prior to opening, call traders that took entry would have been high risk traders only. All of this occurred as we hit 8207, R3, before rebounding. Just like a clock within our system.


Since 2000 the value of the world stock markets have gone down 37%. Since March ,2009 they've gone up proportionate amounts. Both of these are facts. Both can lead to presumptions.
For example, one could assume in a 9 year period that the markets will again go down 37%, if history repeats itself, or one can assume that the 37% increases over several months in 2009 indicates larger and longer upturn.

This is the same logic as: "If we close Gitmo where will we put these dangerous prisoners?" Hmm, considering Gitmo is 90 miles from the U.S., and on soil with a country we currently are on a ridiculous embargo with, it is illogical to even consider that the U.S. could not find a place to house dangerous prisoners, yet we have some that actually create FEAR in our gullible people, and question our ability.
It is this kind of mis-information in which we often build our facts. I use it as we consider just a week ago as the market analysts were seriously explaining to us the strength of the market.

When you find nothing it means you've eliminated what surrounds the something. Learn to watch the market breathe.

A Story To Help Us Trade

90% of all guns recovered from crime scenes in Mexico come from U.S. gun shops.

VIX on Tuesday closed below 30, the first time since Lehman Brothers collapsed last September. This is meaningful, as VIX tracks the OEX and S &P 500, and tends to rise when stocks fall, and fall when stocks turn up.

A year ago, before the credit crisis was "admitted," VIX floated between 10 and 20, hitting as high as 80 in October and November. As the market began to recover this March VIX stayed above 40, suggesting investors weren't convinced the worst was over. The Dow is up 29% since it's low in March, but still down 3.4% in 2009. VIX is confirming that the market appears to be settling. Typically there is reaction to "calming," a more severe consolidation, before supportive upside.

The FEDS midday cut GDP for the 2009 forecast, and raised unemployment numbers, and this triggered sell off. But, we'll tell a bit of a story on this to help us trade:

1. At 10.30 a.m. I ran another Dow pivot point/support and resistance calculation, and noted that the market had gone up beyond the pivot point to the newly calculated R1. I bought at 8.10, and sold hours later for 12.40.

2. From there I saw the market move back to the pivot, and down to S1 where I sold the put for the profits.

3. I promptly rebought the June420P on market upswing, and sold again for 1.00 profits. This means I made 5.30 per contract of profits on this put before 3.30 p.m.

What We Are Told Are Facts Are Usually False

In January 2009 more automobiles were sold in China than in the U.S. In May 2009 President Obama began to put restrictions in to force automakers and the American public to raise emission standards, and force better mileage.

Naturally some autos already achieve these standards, and more naturally many now oppose this as "forced business legislation." Yawn. Whatever it is, when gas is again $4.00 a gallon we better be ready for what it will do the economy NOW, as compared when there was money in our "false euphoria" to pay for it.

Done right, this will re-tool and get cars selling again. And perhaps for once we will begin to see gas consumption standards as a way to moderate our own greed. We do not need to be driving Hummers to the grocery store, pretending to be soldiers, buying our bottled water.

It is obvious that this is a week with little economic data, from the flat lining we've seen, and the discussions on whether Pelosi be impeached, whether the CIA lied, or how the Republican Party can re-group took over more of the newsbites than genocide in Africa, or that up to 940 local anks show potential for a deep hit on commercial property. The WSJ studies show losses could occur up to $100 billion by the end of next year IF the economy's woes deepen.

Couple this with a vastly softened "bank test" that just occurred, and our financial sector is far from renewed, or healthy. Note this as we see the market struggle at key resistance lines , with a top again at 8538 area, and minor whipsaw all day around a flat line. We were able to gain entry to both option recommendations, and some tight profits were available only for traders "catching a moment". We continue to hold the positions.

And the FDIC quietly is weighing a one time fee to replenish its deposit insurance fund that would hit the biggest banks hours.

All is not as it seems. A rock is only hard from the definition we know of the rock, and of hardness. WE do not know what we do not know. And most importantly, what we are told are facts are usually false.