Editor's Note:

Active traders need to stay defensive in this market. I've mentioned it elsewhere tonight but the major market averages have produced two different bearish technical patterns, the head-and-shoulders pattern and the bear-flag pattern. While neither has been confirmed or triggered yet they do not inspire any confidence.

This coming week could see another parade of market moving headlines out of Europe. I would not bet on them being positive for the market. Therefore, we are not adding any new trades in tonight's newsletter. Although we did add three new watch list candidates.

I would hate to launch new positions now only to see the S&P 500 drop toward 1050 or the 1,000 levels that are being forecasted by these technical patterns. Nimble traders may want to consider buying some short-term (October) puts on the major indices if we see a breakdown and confirmation of the sell signals.

-James