1:20pm (EST)
It has been an “all bears” week so far as the market continues to slide on a falling euro and rising Italian bond yields. The global markets are still unimpressed with Europe’s efforts to stem their debt crisis which forced Italy to pay a euro record high yield of nearly 6.5% to sell five-year notes.
The bulls continue to give up ground and today has been a full fledge breakdown as commodities like copper and gold are also tanking.
Gold is often considered a safe haven and has rallied on market pullbacks throughout 2011 but that trade is no longer working. We don’t trade as much as we use to in the sector and we were right earlier this year when we said gold would run to $2,000 an ounce before pulling back.
The yellow metal reached a peak of $1,923 an ounce in September but is at $1,582 an ounce today, down $80. Gold’s 200-day moving average (MA) is currently at $1,614 and we wouldn’t be surprised to see a test down to $1,450 before a rebound. However, if this level holds, gold could be a buy at current prices.
We came into the week expecting a pullback but we also held out hope on the Fed which we thought could sprinkle a wrinkle on new stimulus measures to offset the effects of the European crisis – but that didn’t happen.
The good news is we are right near the support levels we have outlined at the beginning of the week which is create a buying opportunity for either calls or put options. We have averaged nearly 3 trades a week for 2011 but we have only opened 3 trades since the beginning of the month.
We also have some older positions from the massive profitable run that we had from August through the end of October. We closed 44-out-of-52 winning trades but we will have a few positions expiring this week that will likely make this 44-out-of-60 winning trades.
Come next Monday, we will only have a handful of trades open, and some of which we have already closed half profits in. This means we will have room up to 10-15 trades and the market should be exactly where we want it to be.
We have been building our Watch List with both calls and puts and we are looking at January, February, April and June options. There is still a massive move coming and we will see the Dow at 11,000 or 13,000 come the end of January. We are still favoring calls because we are still bullish and the put options have gotten EXPENSIVE which is another reason we have sat on the sidelines.
We said in early November when the market reached resistance we could have a pullback and since then we have been in a 4-week trading range. This is exactly how the market acted in July and August before the huge rally back to the top.
This time, we could either follow the same pattern and surge higher over the next 30 days – or – the market could test its August lows.
The Dow is currently at 11,859, down 95 points, while the S&P is off 10 points to 1,215. The Nasdaq is showing a decline of 38 points and is at 2,540.
Subscribers, pay close attention to this morning’s Watch List and we will be adding a few more candidates tonight as possible breakout or breakdown plays. Stay locked and loaded and get the wheelbarrow out because we plan to make you some bank.
