9:00am (EST)
The usual bull market successfully weathers a number of tests until it is considered invulnerable, whereupon it is ripe for a bust – George Soros
For those who have followed us for years, many of you already know we are neither, bullish or bearish, when it comes to trying to make money with options. We look for trends and we try to play the trend as long as we can, up OR down. We also look for undervalued companies that represent bargains which are when we buy call options or we look for overvalued companies with broke business models or products or industries that are fading which we play with put options.
We have often said that 75% of stocks move with the overall direction of the market.
When you combine these two factors, then it can make trading a little easier. If you are lost on market direction, or can’t read a chart, and don’t do research then it becomes even harder to make money with options which is why we wrote our options trading manual, How to Trade Options on Momentum Stocks. Many thanks for those who purchased the course this weekend and you should have already received last night’s monthly video by now.
Our point is, following 2010’s 5-month trading range from May thru September we said the market was on the verge of breaking out or breaking down as we continued to test support and resistance. In October, the bulls started to give signals they were going to make a move and from the charts is where we have gotten our upside targets.
In fact, we said in November 2010 the rally could last until April. So let’s see where we are following last week’s action.
The Dow jumped 73 points, or 0.6%, on Friday and closed at 12,391. For the week, the index gained 118 points, or 1%, and is up 4.8% during the current 3-week winning streak. We said to watch for a run to 12,300-12,350 and we knew there was a good chance of these targets falling by last Friday. We mentioned in our Daily newsletter on Thursday (and in January) that the Dow could rally to 12,500-12,600 if this level is taken out and longer-term we are expecting a rally up to 13,000. Support is at 12,200 and then 12,000 with multiple layers beneath.
The S&P 500 gained 3 points, or 0.2%, and settled at 1,343. For the week, the index advanced 14 points, or 1%, and is up 5.2% over the past 3 weeks. We got confirmation on the next leg up when the index broke 1,325 on February 11 and we said to circle 1,350. The S&P traded up to 1,344 on Friday and although we haven’t broken through this level, yet, if we do look for a run to 1,375-1,400. To the downside, the bears will target 1,325 and then 1,300.
The Nasdaq added 2 points, or 0.1%, on Friday to finish at 2,833. For the week, the index popped 25 points, or 0.9%, and over the last 3 weeks the Nasdaq is up 148 points, or 5.5%. The push has lifted Tech to its highest levels since October, 2007. We mentioned the break above 2,800 would lead to our near-term target of 2,850 with a possible push up to 3,000. Tech hit a high of 2,840 on Friday. Support remains 2,700 and then 2,650-2,600.
As you can see, the charts have not let us down but sometimes predicting a “time frame” can be tricky. Each time the talking heads and analysts have said the market was going to go down, we said it was going to continue to go up. A lot of pros thought the Dow would fail at 12,000 and the S&P 500 didn’t have a chance at clearing 1,300 before a “pullback”. They were wrong. They were also wrong on Dow 11,500-11,600 and S&P 1,250.
Here is a simple tip we will share with you and it has served us well over the years. We also like to look for down Friday’s followed by down Monday’s in bull markets (up Friday’s and Monday’s during bear markets). This has happened only once this year and it was on January 7 and 10 which was a down Friday and a down Monday for the indexes but not by much. This event made the pros nervous and many figured the “Christmas rally” would end. It didn’t and we gave even more reason to be bullish in January.
We also know that at some point the market will slip, stumble, or slide but until we see lower highs, followed by lower lows, and a panic wave of selling that starts to breach key support levels, we will continue to remain bullish.
The BEST part of this current rally is that the market is out of its “range” and we are going to see some explosive moves in the coming months (and years) as the world gets more global along with the markets. The changes are going to create incredible opportunities to play both the long and short side of the market(s) but the bulls continue to look as though they want to push us higher for now.
We will be watching S&P 1,350 and Nasdaq 2,850 today and this week, closely, and if the bulls have trouble advancing from here then we might be getting some signs. Until then, follow the trend.
We have a lot to cover in our Members Area as far as our current trades, including some new candidates on our Watch List, as well as one old favorite, Garmin (GRMN, $33.02, down $0.41) which announces earnings on Wednesday.
Futures have been pointing towards a nasty open since late last night but they have improved. In fact, the Dow futures were down triple-digits but have been cut in half as worries over oil, earthquakes, and geopolitical violence take center stage this morning. As we head to press, futures look like this: Dow (-63), S&P 500 (-15), Nasdaq 100 (-33).
Gold is up $15 to $1,403 and is back over $1,400 an ounce while silver continues to shine at $33.24, up $0.94.
]]>