12:05pm (EST)
Capitulation is one of those cool words that we only get to use every now and then but when we do it packs a punch. The term is sometimes used during downtrends in the market after selling pressure has become so extreme that investors throw in the towel. A huge rebound usually follows capitulations and after the lows in August, the market has made a nice run to start September.
We have mentioned midweek could be a turning point for a pause in the rally and with the market mixed heading into the second half of trading, we could be seeing the beginnings of a possible pullback we have talked about.
Capitulations can also happen during market highs and after the strong 2 days the market had to start the week, we could also see a pullback if the indexes fail to break out of the top of their trading ranges.
The bulls have triggered our upside targets for the week with a little fluff, and we have been warning once the top of the trading ranges are reached their could be a retest to the bottom and the August/ June lows again.
There is still the slim possibility the indexes breakout to new highs and that the Nasdaq and Dow trigger our year-end targets but we are weary. When the S&P 500 and Russell 2000 reached our yearend targets of 1,700 and 1,025, respectively, we did not raise them back in the summer.
Our Dow and Nasdaq targets we predicted at the beginning of February are still within reach but it remains to be seen if they are reached this month or next or by the end of December.
Our point is we have called for a pullback starting tomorrow. It is always wise to plan you trades and trade your plan and that is what we are going to do.
Our portfolio is super light so we can continue to start new put option positions but we would like to see a few layers of support crack before loading up and going all-in on the short side.
We do have a New Trade we are getting into today as we saw some explosive action in the option pits yesterday on a stock.
Shares have made a nice run from $12 to over $14 this month but we believe a back test to $12-$10 could be in the works.
As we head to press, the Dow is up 76 points to 15,267 while the S&P 500 is up a point to 1,684. The Nasdaq is down 11 points to 3,717 and the Russell 2000 is lower by 2 points to 1,053.
Subscribers, check the Members Area for the New Trade and Profit Alert. We are closing our last September option trade as we gear up for October, November and December plays.
