It appears the rally is losing steam and it maybe time to tighten up our stops.

I considered changing the stops on Wednesday night and I am glad I held off one more day. The nearly -90 point drop on the Dow at the open and the corresponding drop in the other markets would probably have taken us out of our plays before the afternoon rebound.

However, the three-day lag in the markets has me worried. Volume Thursday was higher than I expected and that is probably due to the afternoon short squeeze. Unfortunately the Nasdaq and S&P barely clawed their way back into positive territory as the squeeze lost traction going into the close. Maybe it was fear of Dell or maybe there were simply not enough traders in the market to generate the required excitement level.

We did see another major dip bought. The Dow traded back over 9600 but was stopped by the same resistance that stopped it on Tuesday.

Dell reported earnings that were less than stellar but then rocketed nearly +1.50 (10%) in after hours trading. It did not help the Nasdaq futures, which are trading down at midnight ET. In fact all the futures are trading down slightly overnight and the Asian markets are weak again.

Crude is holding just under $73 after a +3 spike on Thursday. That spike was not enough to turn my quote list of 150 energy stocks green with only about half making it to positive territory. There is a lot of confusion in the energy market and the market as a whole.

This is why I am going to recommend some stop loss changes for Friday. If the market does decide to take a breather I want to capture what profits we can or at least escape without any losses. If the market does tank we need to be ready to reload at the bottom rather than use our mental energy worrying about losing positions.

Unfortunately this early in the September cycle the premiums on all puts fell and that means our long puts lost ground as well and that is impacting the overall gains. This is a fact of life in put spreads and it will eventually equalize if the market continues to go up.

Check for new stop losses in the portfolio graphic below. Hopefully we won't need them but at least we will be protected. If we are stopped on a spread position ONLY CLOSE THE SHORT PUT. Keep the long put open just in case the decline continues.

Jim Brown

Current Portfolio