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.

S&P 500 - Long Term Investors Take Notice

The high achieved by the S&P 500 today sent it into the 50% retrace level and placed it in the potential Danger Zone.

The reason I make mention of this is the clear fact that in many many instances the 50% retrace level is a point of very strong resistance and in this current market environment could be construed as the termination point of a bear market rally.

This is not to say that the party is over! What it dictates is that all investors need to watch this price level with some intensity because odds favor prices to head south from here. If the market can close above the 50% level and move on to the 62% retrace level it would have some very bullish implications for the long term health of the stock market.

As I have also been saying, the next corrective force in the market needs to be monitored closely for a clue to the next major long term move in stock prices. First and foremost, the S&P 500 must be able to hold its most recent major lows in the 1260 area. This is a minimum requirement. The ideal situation will be for the market to hold the 50% retrace level of this entire rally from 1260 to current prices. I will be supplying targets very soon.

Because of the 50% level being achieved on the potential counter-trend rally, I am advising a reduction of equity exposure from the current 60-75% stock allocation down to a 40 to 50% allocation to stocks, just to be on the safe side. For those of you who have considerable capital gains in your stocks you can go to the option market and hedge your positions with put options and put a synthetic sell into place.

I will have more information on the Weekend analysis, but I thought I would get the preliminary outlook out in plain view.

Equity Market Comment - 5/1/2008

Today was a very lucrative day for both the day traders and option traders who took the late night alert towards the typical May 1st trading pattern. Although you may have missed the first 6 points of the rally in the S&P 500, the pattern held true with the 11:00 to 11:30 am acceleration in prices and while the market moved 16 points higher from this point, I was content with 12 and made the exit.

I still believe that this was a one day wonder and the market should see the corrective pattern return Friday. Friday is the worst day of the week both for return and also odds of being an up day. Being as the seasonal day of the week pattern has been so hot recently I thought I would run by the pattern for Friday for those who wish to once again capitalize on selling futures short or buying puts.

Friday, if it follows the typical pattern should see the market trade sideways to higher for most of the day with the days high coming in near the 1pm est mark. From there we should see the market fall apart and decline quite sharply. Therefore look to this time of the day to establish SPY put option positions or sell the futures short. Remember to always use a protective stop on all short term trades to protect yourself from unexpected events.

Soybeans Make A Nice Move Lower

The first full day of holding the short position in the July Beans and we were given a very nice move lower that quickly put us in a decent profit.

This being the case, the protective stop can be moved down to the breakeven level, effectively making this now a risk free trade. Risk free trades are the first and foremost type of trade we look for and we were fortunate enough to be given one so soon.

The decline in prices should continue and quite violently at that so move your stop to your breakeven level and get ready for a move lower that could possibly take your breath away!

New Information For Position and Day Traders

I just happened to be thumbing through my seasonal pattern notebook and I came across the Last Trading Day of April's pattern and also the first trading day of May.

The pattern for the last day of April was right on the mark, which increases the probability that the seasonal model for the first day of May should be fairly close as well.

This pattern for Thursday is also confirmed by the typical Thursday pattern as well.

The reason I bring this really only to the attention of Day Traders is that The odds favor this pattern to be a one day event.

The pattern calls for some follow through of the weakness we had today in the morning half of the day, with the days low being put into place in the 11:15 to 11:30 AM EST time frame.

Therefore, should we see some stabilization in this time frame tomorrow and a crossing of the 3 or 5 minute stochastics near this time it could be a very lucrative day trade for call options or going long the S&P 500 futures.

Remember that if you choose the SPY options to make sure you buy an in the money strike of at least 1 point and ideally an in the money of 2 points or more. Being as this will be a day trade only you need not spend the extra money on going out past May on the expiration.

This is a very high risk trade that will be going counter to the down trend that was confirmed today so keep a very close stop in place and make sure you only look to buy the calls in the time frame I mentioned above.

SOYBEANS - Short July Beans

We were waiting for a small rally in the July Soybeans somewhere in the neighborhood of a 50% retrace and intra-day today we got just that.

We are now short the July Beans from 13.30 4/8 with a tight close only stop loss at 1365 even.

If in fact my analysis of the Soybean Market is correct then we should see and almost immediate decline from here and also in a rather dramatic fashion. This will allow us to know right away if I was correct and if the trade should continue to be held or not.

LXU - Breakout!

LXU made its breakout move today moving above the upper line of the wedge pattern.

The stock has also been following the historical model to a tee and should it continue down this path then we should see an extremely sharp rally on Thursday and Friday as the chrt below demonstrates.

Equity Market Comment - 4/30/2008

The market today broke out of its ascending wedge pattern to the downside on increasing volume which is a bearish pre-cursor to lower stock prices.

We also had an outside day with a down close which is also a bearish pattern.

With these two occurrences on the same day seems to give some credence to the possibility that a corrective mode is starting.

It is this corrective pattern that is going to give us a very good idea of what the equity markets may be facing over the intermediate to long term.

I continue to believe that this move lower should be very limited and the lows at 1260 not being violated, but the market will have the final say so on all of these theories.

LXU - UPDATE

LXU attempted a break-out move through the top of the wedge, but was unable to sustain the momentum to get a close outside the pattern.

The last 3 days are looking quite bullish for the stock with each day seeing an uptick in volume.
Aggressive traders are already long the stock or call options.
Conservative traders should wait for the breakout and the ability of the stock to close outside the pattern.

Equity Market Comment 4/29/2008

Todays market action was yet again more of the same narrow range non trending prices.

The market continues to await the Federal Reserves Policy decision tomorrow and also the non farm payroll data that is due out Friday. Therefore any type of short term positions you may have could be vulnerable to the events of the days to come. It is times like these that the best action for short term traders is no action at all at least until the market has an opportunity to digest the forthcoming items.

The technical picture continues to point to a corrective phase just around the corner, but I will not take any such position given the current pending market news. Of course you could very well score big if you happen to be on the right side of the market when the news is announced, but this amounts to nothing more than a crap shoot and I learned along time ago to steer clear of just such opportunities.

If you simply must play then the only logical strategy is to put a straddle on (Long Puts and Long Calls) and once the news is out and the market begins to react then keep the position showing you a profit and dump the one showing you a loss. This is a more expensive way to trade, but a much safer way also.

LXU - Offering a Potentially Explosive Move

Take a look at the daily chart of LXU and take notice of the notes on the chart.

The stock currently offers a fairly low risk opportunity and a potentially huge reward.

Make sure to check out the last chart also which is a historical chart with the current price data (BLUE) placed over it. The chart pattern follows the current move by 94% so there is very good odds that LXU is in a very strong position.



Take note of the possible upcoming move in LXU.

Soybeans - Low Risk Opportunity

Currently the Soybean market offers an extremely low risk shorting opportunity with some serious profit potential on the downside.

Typically a set up such as this comes along once a year in each of the grains and this looks to be the time for Soybeans low risk set up.

The Commercial Traders are very heavy sellers of the Soybeans right now as they recognize an overvalued market that has been fueled by the Ethanol craze in Corn.

The downside potential for the beans is at least the length of the first decline, which was $4.61 per bushel. This would bring the Beans down to $9.54 per bushel, which is a much more realistic price based upon the current supply and demand factors.

We will be looking to short the July Soybeans upon a counter trend rally from current levels.
Look for the 13.30 to 13.45 area on the July contract to sell short with a stop loss just above the most recent highs.