9:00am (EST)
The world hates change, but it is the only thing that has brought progress – C. Kettering
Our Tuesday morning headline read “Market Faces Key Pivot Points” and we used this headline to try and keep everyone’s emotions in check.
If you recall, we had expected a market pullback during February expiration week but that changed when the S&P broke 1,325 on Friday, February 11.
To make a long story short, we were winding down trades that had been recommended since January and February (and in 2010) after a continued bull run that started in mid-September 2010.
From October to the end of 2010, we closed 13 out of 17 winning trades and we said in November that the uptrend or breakout could last until April. So far for 2011, we have closed 16 out of 18 winners. In other words, over the past 5 months we have recommended 29 out of 35 winners for an 80+% success rate. Some of our triple-digit winners have included gains of 141%, 170%, 114%, 182%, 150% (twice), 125% and plenty of high double-digit gains.
As we closed older positions, we started to plan our next “batch” of trades that have expiration dates in May, June, July and August because we are still bullish for the year but we are also eying downside opportunities as well.
It is hard enough to predict when market pullbacks can and will occur in bull markets but we have been using the charts to help take our emotions out of trading. In fact, when others were selling, we recommended call options because we knew our upper end targets were within reach. Although it is eerie how this has all played out, we did NOT factor in geopolitical events and charts can feel useless when there is volatility in the market.
The S&P 500 came within spitting distance of hitting 1,350 while the Nasdaq tugged on 2,850’s cape last Friday. The Dow actually traded thru our 12,350 target.
The market has obviously backed off these levels but this has been a “healthy” cleansing for the bulls that should refresh them if they plan to continue their run higher.
We recommended some protection from silver 3 weeks ago which hit a triple-digit return for us yesterday while we went longer-term on our other options trades. Investors seem to flock to gold and silver when the markets look like they are in trouble. Plus we told you the metals held their 200-day moving average and could be heading up back up when we recommended the trade.
On Monday night we prepared for the storm after seeing the futures weaken over the weekend and with the Libya turmoil heating up. We said support was at 12,200 and then 12,000 for the Dow “with multiple layers beneath”. The index touched a low of 12,063 yesterday before finishing at 12,105, down 107 points.
For the S&P 500 we said to watch for 1,325 and then 1,300 to hold. The index touched a low of 1,299.55 before closing at 1,307, down 8 ticks.
The Nasdaq touched a low of 2,705 on Wednesday which was just above our 2,700 support line. On Tuesday the index closed at 2,755 after we said 2,750 should hold. The index finished at 2,722 on Wednesday, down 33 points, and right in between our zone.
We don’t mention this to be a hot dog but to calm your fear of pullbacks during bull markets, or what to look for during a trend change.
We do, however, have to realize this could be a trend change but there are still several more layers of support the bears will have to crack for us to throw in the towel.
If the market does continue lower, then the next waves of support for the indexes are:
Dow 11,800; S&P 500 1,275; and Nasdaq 2,650. If these levels are breached and we end Friday on a weak note then the market really could be in trouble.
We have added a few put options that we profiled in our trading video from Monday night although they weren’t official trades of course. We showed our members how to play the market if it were to head lower and we showed them some March puts that have easily doubled since Tuesday’s open.
We don’t like to “day trade” options during a trend but we may have to if the volatility continues to pick up. This means there could be possible trading alerts outside our normal updates at 9am and 1pm.
Futures are pointing towards a lower open this morning but have come off their worst levels after a better jobless claims number: Dow (-18), S&P 500 (-4), Nasdaq 100 (-5). Subscribers, check the Members Area for the updates.
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