Equity Market Comment - 5/8/2008

The market had begun to tip its hand and show its weakness as a high probability day of potential strength was met with selling at every attempt to bid prices higher.

This along with the pattern that it has created for Friday leads to a possible meltdown tomorrow or at the very least a fairly strong day of declining prices.

There is a clear warning here when the cash S&P 500 manages a better than 5 point gain, yet the smart money in the S&P 500 futures pit were sellers and finished the day to the downside.

Directly below you will also see the tick by tick display of the put/call ratio and as we have seen all this week, the small investor continues to pour money into the call side expecting sharply higher prices in the near term. This is a very negative connotation and one that typically comes before the fall.


The NASDAQ, much like the S&P 500, formed a pattern today that has some very high odds of producing sharply lower prices the next day.

The Day to Day sequencing pattern calls for lower prices from start to finish tomorrow with a real possibility of a very hard down day. It should prove to be very interesting.

I remain in a very defensive posture with only a 45% allocation to equities and a very keen eye on how this potential decline unfolds.

Aggressive traders can look to get into some SPY puts tomorrow morning providing we do not have a steep gap opening lower. In the event of a lower gap opening, wait for at least half the gap to be filled and ideally all of the gap before purchasing put options. One strategy will be to purchase half your lot on the half gap fill and the remaining if and when we fully recover the lower gap opening.

It is shaping up to be a very interesting day tomorrow, so stay tuned, the party might just be getting started!

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FORD - Corrective Wave In Force

Ford stock appears to have just completed a very strong first leg higher and today confirmed that a corrective wave is in process.

This should only be a corrective pattern and we will be looking for 7.33, 6.87 and 6.42 for possible downside targets. Upon completion of this corrective pattern the stock should make an even stronger push higher.

LXU - Take Profits

Exit any remaining position you may currently have in LXU.

It has rewarded us very nicely in a short period of time and today formed an exhaustion
pattern with an attempted push sharply higher only to have strong selling pressure push it lower, but up on the day. We also got a sell signal on the stochastics.

The price pattern we saw today may very well give one more push higher in the morning, so use this to your advantage.

Based upon what the price does from here we may very well get back into the stock. In the meantime take your profits.

Equity Market Comment - 5/7/2008

The market action today seems to add yet more credence to our outlook for lower prices over the next couple of weeks.

The SPY 142 puts that were purchased yesterday gave us a clean double today, much sooner than I had imagined I must add. I remain in the puts with a stop loss in place that will capture a 75% return. The reason I did not take them off the table today was the fact that the market seems poised for yet more follow through tomorrow. The daily pattern calls for a continuation of lower prices into the 11:00 to 11:30am time frame tomorrow and at this time I will be selling the entire lot of put options.

For the truly aggressive who have been amply rewarded by these puts, there is yet another opportunity if we do in fact see a low put into place in the 11:00 to 11:30am time frame then it will be time to not only exit the put options, but enter into in the money call options. What we will be looking for is a counter trend rally back up to retrace 50% of this decline, but I will be giving targets if this pattern occurs.

On the intermediate term front we are closely monitoring the wedge pattern that I have drawn on the chart below. If we close below the lower line of the wedge pattern then the minimum downside target is 1280 on the S&P 500. The main question that we will try to answer in a timely manner is if in fact this possible next move lower is simply going to be a test of the lows or the start of a new leg lower.

As it stands, remain in the highly defensive 45% allocation and be prepared to hedge the remaining positions with options should the market call for this action.

Soybeans Update - Do or Die Time

Time is not on our side here with the Soybean trade as they seem to have hit a strong floor of support.

In order for the short position to remain in tact, the beans need to break to new lows withing the next 2 trading sessions otherwise we will exit the trade with a small profit and await yet another potential set up trade.

LXU Update

LXU continues to make headway towards its minimum breakout target of 17.50.

Upon reaching the minimum target at 17.50 sell half the position and let the other half continue on the board with a stop at break-even.

So far we have taken 12% out of the stock in just over 1 trading week with what looks to be a possible 20% return at the lower target.

Equity Market Comment - 5/6/2008

The market held true to form today with the Monday/Tuesday reversal pattern that has been around as long as I have been involved in the markets. This pattern is not always present, but when you have a situation like today with early weakness and the Tuesday pattern calls for a higher close, then you are presented with an excellent trading opportunity.

As I mentioned yesterday, if we were to get strength today then it was to be used to sell into and aggressive traders could sell the futures short or buy SPY put options near or at the close. I opted for both!

We are long the May SPY 142 puts from 1.44.
The reason I picked these options in particular is their very real potential to double in price over the next 3-5 days.

The bearish evening star pattern from yesterday remains in force and the sentiment as measured by the CBOE Put/Call ratio continues to run in an area that typically sees market corrections. As a matter of fact, the small investor was gobbling up as many calls as they could get their hands on this morning on the weakness which is yet another bearish precursor of things to come.

Equity Market Comment For Tuesdays Trading

The market today made one of the more reliable candlestick patterns of the bearish nature.

Take a look at the last three days of market action and you will see an Evening Star pattern that just barely confirmed itself today. This pattern typically is of the intermediate term basis so it tends to confirm my outlook for lower prices in here.

The put/call ratio was also on the bearish side today as it appears that the small investor does not think these lower prices will last and they are positioning themselves for a move higher with call options. At the very least, the put call ratio should have been above 1.00 today considering the fact that the market was almost down 1/2 percent, but it closed at .90 which is more relative to an up day then a down day.

While we do have the possibility of a Monday/Tuesday reversal tomorrow, it would appear that it would be a good time to either reduce your equity exposure and for the more aggressive, purchase some in the money SPY put options.

We are getting some fairly strong confirmations that we have entered into a period of selling strength as the prudent course and although the final tally is not in the evidence weighs heavily on the lower prices scenario.

Keep in mind also that we have achieved the 50% retracement level on the S&P 500 of the decline from 1580 to 1260 and if we are in fact still in a bear market, then the next leg down could be a hummer. It is because of this possibility that I have reduced my equity exposure markedly and upon a confirmed stochastics cross on the daily chart I will also be purchasing put options against my equity holdings for portfolio protection.

It is definitely time to stay very close to the market as we are at a very critical juncture that should portend the next 15-20% move one way or the other.