9:00am (EST)
Futures were pointing towards a rough outing on Thursday before the bell as the disappointing Tech earnings news we talked about was weighing heavy on the market. However, the bulls remained calm throughout the chaos as they held down support after a better-than-expected jobless claims number and rallied the troops to a mixed win yesterday.
The bulls got another break when news broke shortly after the open that Egyptian President, Hosni Mubarak, was considering resigning, but that has all changed in the last 24 hours (another curveball). Mubarak has transferred his powers to the VP, Omar Suleiman, but this wasn’t enough to please the swelling crowds that continue to protest.
No worries, the bulls shrugged-off the news and managed to push the Nasdaq and S&P higher while the bears settled for a piece of the Dow.
The blue-chips fell 10 points to 12,229 but the Dow never managed a trip into positive territory throughout the session. Still, it was an impressive performance by the bulls.
The S&P 500 advanced a point to 1,321 while the Nasdaq ended at 2,790, up a point as well. We were especially surprised by Tech as we were watching the recovery in the first 30 minutes and to finish in the green was incredible.
That was yesterday.
Although our game plan didn’t go exactly as we wanted this week, we still accomplished the same mission by closing a few trades for winners as we head into next week. Again, we don’t think the bulls stampede is over but we are nervous about February option expiration week. However, Egypt is squarely back in the picture again after the runaround Mubarak pulled. Dude is trying to stay in control of the country until September which is 6 months away. Yeah.
Meanwhile, this could get ugly and with the weekend here, investors seem to be dumping stocks before the open.
We said the S&P would rally to 1,300 in early January and the “fluff” would be up to 1,325, possibly 1,350. Many of the pros were calling for a “pullback” then because 1,300 had been strong resistance. We came within a stone’s throw of breaking 1,325 on Tuesday when the index hit a high of 1324.87. The “fluff” we had factored in was the Tech earnings that didn’t happen on Wednesday after the bell that was going to get us to 1,350.
We don’t mention this to pat ourselves on the back. These targets are where we had penciled in a pullback anyway and it was setting up beautifully going in to next week. It just came two days early. The reason we are telling you this is because we have a lot of people who have purchased our option trading course, How to Trade Options on Momentum Stocks, and this is our way of “teaching’ charting.
Our point is we have been flawless on calling this bull market run but as option traders we always hope for the best and prepare for the worst. That may sound strange but the market owes us nothing so we try to do a lot of homework to stay ahead of both the bulls and bears. We are old school, we plan for everything.
We are going to try to do our “monthly” video for the market this weekend (or next) for those of you who have purchased our trading course. These videos go hand in hand with our option trading manual and we want to show you exactly where the bears went and how far the bulls have come back over the past couple of years. We may take a look at earnings for next week or the week after. This part of the video shows you how to find companies that are reporting earnings which helps you plan for trades. You can then use our manual to figure out straddles and strangles trades which use both call and put options and can make anywhere from 10% to 100%. No kidding and they provide you a safety net.
We have profiled two strangle option trades this week outside our Members Area because we wanted to show you how they work. Although we haven’t needed to use straddles or strangles trades in four months, we might going forward, so you will need to learn how they work.
We learned a lot last year about trading ranges and we had a hard time introducing these trades to our subscribers because some investors just don’t understand them. However, they can calm the waters and make 50%-100% on trades when things are sketchy or you know a big move in a stock or the market is coming.
We aren’t ready to start profiling a rack of these types of trades just yet because we have penciled in April for a continued rally but that could change if support doesn’t hold. The world changes every day and the Egypt headlines are a perfect example but we are expecting support to hold. Again, the bears will have several layers to crack through until they change the TREND.
We feel pretty good about our current trades because we have a nice mixture of longer-term plays with some protection in some sectors that could rise on a market pullback. However, all signs are saying next week could be rocky. If so, we might do some quick “day trading” with put options.
In the meantime, we have added a number of exciting trades on our Watch List, both calls and puts, as we prepare for the market’s move over the next 2-3 months. Futures look like this: Dow (-34); S&P 500 (-4); Nasdaq 100 (-5).
Subscribers, check the Members Area for the updates and we will review support levels at 1pm.
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