Wild Times Persist
Today's session was yet another in a growing string of volatile times. The action continues to be so fast & furious it easily traps traders taking either side on a play into buying tops or selling bottoms. A quick shakeout for loss is painful for most, fiscally and emotionally. Stops are worthless if the entry isn't precise and all but veteran traders have become seasick this week.
Friday began with a gap-down open after PPI numbers came in far weaker than expected. Maria tried to explain this away as a blip from the Sep 11th period built in that data and cooed it could be revised. Hmm... when was the last time she made that statement after a bullish report that takes everyone by surprise? We've seen plenty of PPI and CPI reports revised lower weeks later on quiet admittance from CNBC non-trader reporters, but their bias has long before been duly noted.
Players weren't soothed and selling hit from the gap-down open. Price action bounced up and down into ever-tightened price coils that formed very clear wedges in 10/50 minute charts.
(10/5 Minute Charts: SPX)
After the worthless gap-down move to open things up, it appeared we would finally get some predictable entry points for website followers. Price action coiled into perfect wedges and stochastic values on all 60/30 and 10/5 minute time frames were moving down. One had to have been decisive and fast in entering put play orders as breaking news blasted markets out of those wedges on our second gap-down move in less than three hour's time. The entry exploded as option prices gained +30% or more in one minute's tick... over and done with just like that.
Very frustrating times for those who try to operate a service that functions on pre-staged entry instructions. Aspiring Swing Trade model followers email and ask me why it isn't logging these trades. Can you begin to see the challenges faced in slow moving websites trying to catch fast moving markets?
(60/30 Minute Charts: OEX)
We did of course have a textbook bullish swing trade setup just past 2:00pm EST. All 60/30 and 10/5 minute charts were aligned in bullish fashion as higher session lows held at a predictable time of the day for directional action to begin or resume. This is the type of setup high-odds swing trades are made of.
So why didn't IS buy calls with reckless abandon? Several problems. With two hours of trading left before two days of weekend time decay arrive, who wants to hold long until Monday if need be? With news conferences breaking all afternoon that already shook the Dow out of -100 index points in five minutes flat, can we feel good about strength flowing into next week? With option "ask" prices flared and "fair value" hyper-inflated, was that a good time to buy?
OEX 560 calls did go from 7.00 sale at 2:00pm to 10.00 sale at the close for a nice +30% gain. Hindsight is perfect, the trade would have made a profit and history is behind us. Holding that into Monday on a flat open will see prices sag to 9.00 or less with decay and any negative open would have the trade right back to entry or below on the bid. Individuals who follow our extensive training here had ample opportunity to profit and my personal congrats to those who did. Education is golden as self-taught traders have quickly discovered
(Weekly Charts: Dow, QQQ, OEX, SPX)
Smack-dab in the midst of bullish strength. Stochastic values are all aligned midway thru an uptrend and plenty of room to go. We should attempt to buy every pullback to support that makes a successful bounce with several caveats. Negative fundamental news can thwart any call play as witnessed early today. Use of 100% risk capital and no stops or at the very least reduced amounts of capital is wise. Respect daily and 60/30 chart signals. When they are in decline, sit out or scalp for day trades intrasession only. The overall bias is clearly upward at this time.
Selling pressure a few weeks ago exhausted itself and spawned a period of bullish euphoria that stands to last awhile. How long? We'll know it's over when weekly charts go bearish again. Left unchecked by negative news, that could take us into the Christmas season or beyond. Bulls are raging with plenty of sensationalism to feed off. The war is progressing well. The Fed has slashed interest rates to a level of free money and promise to do more. Our government is trying to implement legislation to put a chicken (or more aptly a Big Mac) in every pot by the holidays. Mass liquidity will indeed inflate equity markets wildly if given the chance.
Don't fight the tape... just go with it while the upside lasts!
The economy will get worse. The war effort may drag on for a year or two by U.S. and Great Britain's admission. Plenty of existing companies that struggle now and even enjoyed great gains this week will go bankrupt and cease to exist as well. Nonsense you say? Let me offer living proof of what the future may hold by examining history.
(Historical Chart: Polaroid)
You remember Polaroid, right? Instant cameras, been around since 1937. One of the raging "Nifty Fifty" momentum stocks from the last great bubble in a previous era. I couldn't find all-time historical prices but here we have data since 1970 to make a point. See where price action posted a double top failure at $70 in 1972 and 1973? Plenty of buyers loaded up their long-term portfolios at those prices with this solid, long-standing company.
Better entries came along at $10 for the next ten years. From 1975 to 1985 PRD rolled between $10 and $20 with one brief pop to $30 mixed in. Buy & hold approach until 1986 made zero gains and lost opportunity cost in dead money. The next secular bull market from 1980s to 2000 offered opportunity once more for this stalwart. Those who bought & held with impunity bailed in a big way 2001 from the looks of that volume, right before it cratered into Chapter 11.
Moral of the story on this dead fish stock? Replace that symbol with AKAM, CMGI, RBAK, JDSU, GLW, GBLX, ITWO and hundreds of other tech darlings that went from above $150 to below $10 per share in one year's time. Will all of those listed above suffer the same fate? Impossible to say but we can be sure that some will and countless others besides. Impossible to imagine? Same for my mom to fathom. She has used Polaroid cameras longer than I've been alive. Now her 30-year old instamatic is worth more than 1,000 shares of the parent company.
At least mom's camera still works, because PRD doesn't. Plenty of former tech darlings will soon follow suit.
Free Money Cannot Stave Reality
We are traders and thrive on moving markets. We are option traders who thrive on markets that move up or down, with a slight bias for down markets based purely from a profit standpoint. More money is made faster in falling markets with a rising VIX but I'll happily take it either way. Just please give us some entry points where markets don't gap up or down and waste all that precious space... unless we happen to be long the proper direction before!
Best Trading Wishes,