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Recommendation: Yes, I know. It is a work of art.

Long: Creativity

Short: Hurdles

Disclaimer: I have none today. I am an open book as it is.

Note: Hurdles have been cleared, what a pain in the ass.

My recording software is getting a soft re-boot. Yep, somebody tampered with my recording studio. Don't worry, I have asked my secret agents to check the surveillance tapes last night to see who did it. There will be hell to pay.

Until I find a solution, it is with deepest regret that I put today's video on back order. I can't imagine that it will take too long, but I wanted to give everyone a heads up.

In the meantime, AAPL has lifted the market just as I suspected. There is a monster bid for technology stocks, and we are getting some great moves from the supporting casts such as small cap, financials, etc. You have to buy into this dip. If you are nervous, nibble into it.

Lastly, if you tried to participate in last nights event, I apologize for the lack of technical support, audio stream, and everything else that went wrong. The event was way overbooked (2,700 people) and Webex apparently can't handle that type of volume. The fact that the technology around here makes me look bad is really starting to get under my skin. Anyway, the presentation was recorded, and will be posted on the Investools site later today. Again, my apologies.

Watchlist developing...

I had a request to speak about diversification. Normally, on a Monday special requests are denied. However, it is not like this is a complicated topic...or at least this is not a topic that should be complicated.

How you approach diversity in your portfolio is your own business. But if you are building a portfolio of owning different investments such as ETF's, Equities, Gold, Bonds, etc...try to assign a delta to your portfolio. Confused? If you own 1 share of stock, you have a delta of 1. If you own one share of ten stocks, you have a delta of 10. If you own one share of ten stocks, and one call option on another stock...you get the point. If you are confused as to why many of you lost your ass-ets on Friday, plain and simple- you owned too much.

Diversify.

The last big drop in the market I went out and gave specifics as to how I survive in the market. I opened your eyes to my portfolio specifics. And while I am not about to do it again, I want you to understand the idea behind it. Last week (Monday) I mentioned how I was bearish for the upcoming week, and traded accordingly. I took bearish positions (negative delta) on trades that were highly correlated to the market, and other bearish positions that were going down regardless of the market. At the same time, I still took bullish positions (positive delta) on stocks that were moving higher. I try and stay neutral (offset delta) to the market. This is the only way you will survive as a directional trader. If you own too much, and by design your trades are intended to be profitable moving in only one direction, a day like Friday will eat you and all of your money.

Many of you spend too much time worrying about things like other peoples trading signals, what price pattern it is you are looking at, which strike price to select, how to read implied volatility, etc when you haven't constructed the basic tenets of portfolio management or asset allocation.

Shame on you.

To your defense, I can't make any assumptions when I have no idea what your time frame is, what your financial standing is, your risk tolerance, your investing objectives, or anything else looks like about you. What I do know is this... I don't care who you are or what you are trying to accomplish, you will not last long in the pursuit of becoming a decent trader without creating a firm foundation of these basic principles, which are...

Risk management- Plan your loss before planning your profit.

Diversification- Be bullish, be bearish, be involved in various groups/markets.

Proper Position Sizing- Trade small, trade safe.

Effective Trading Plan- Make sure your plan works, and/or makes money.

Cutting Losses Short- Enter a trade that offers a small loss.

Letting Winners Run- Don't kill your winners.

Curbing Your Emotion- This is a bi product of trading small.

Since I have spent the last ten years of my life developing and optimizing all of the above, I am able to do this (see below) on a day like today... or any other day for that matter.

Recommendation: Give your account the same foundation so you can participate in the activity above.

Long: My rules

Short: My emotion

Disclaimer: If you got emotional and closed good positions this morning, or shorted "mother market"... again, shame on you.

Update: If you took any part of this post personal, don't. You know I am not in the business of attacking, just trying to get a message across. If I were mad, I wouldn't have addressed it at all.. When all else fails, "Fresh Tactics."

PLEASE!!! My inbox just went nuts with e-mails comparing today's 2.5% drop in the Dow, to 1987's 22% drop in the Dow. Are you kidding me?!

Gang, the Dow would need to drop 2,600 points to be in the same ball park.

Comparison Denied.


Recommendation: If you want to see what it was like to trade through a "Crash" I can start to liquidate my account on Monday.

Long: My account. I want to keep it.

Short: Weak Comparisons

Disclaimer: Thank you to diversification, I left my trading station for the majority of the day.

So the question now becomes, "what do I want to talk about today?" Other than being donkey punched by China, nothing. Today was the reason I wanted to scale back my position sizes in China last week. I guess I can redact yesterday's statement and today state that I am glad I did.

In the effort of keeping my emotions sidelined, I am trying to focus on happy thoughts, such as TBSI, OYOG, ISRG, RIMM, JEC, ALXN, PCLN, CNQ, BEAV, CTRP, TIF, HANS (of course) and finally, good ol' MON.

BTW- ANDE finally broke out for anyone that gives a $hit.

I won't forget to highlight a few shorts I am proud of...mainly JCP, GLYT, GCI, JCG, MTG, ZION and NCS.
Aside from that, I got nothing. I am scouting out a few more trading ideas for tomorrow, so keep your eyes peeled. Many of the watchlist ideas are panning out pretty well, so hope you were paying close attention.

Recommendation: Rumor has it that I have been mocked in pursuit of the best blogger crown. We all know the fate of those that mock my presence.

Long: Reputations

Short: Choosing words wisely

Disclaimer: The competition will eventually submit to the power and will of the Option Addict.

Sorry I am late, blogger has been giving me hell today.

That was a mean U-turn that the market made today. Remember that 20 day SPX chart I shared on Monday? It marked a weekly top, no doubt.
Despite the exfoliation of profits in my calls today, China has kept me in the black. I have to give a nod to PTR, SNP, FXI, LFC, YZC, FSLR, BCSI, CHU, CMG, CNQR, CTRP, MTW, NVDA and CNQ. I also have to give a shout out to all my shorts for today's turn around, especially AOS, ZION, NCS, CPA, AVTR, GLYT, JCP and a few others.

By the way, I like how MCRS is setting up. I might add instead of subtract in front of earnings.

As I pondered today's topic, I looked no further than the topic of patterns. One of the most predominant patterns I am seeing across the market is the cup and handle. If you have read this blog for a decent period of time you will know that I am not a big fan of this pattern. However, rather than speak in biases, I will teach facts and you can decide on your own.

The pattern falls into the trend continuation category, which means upon breakout, prices will advance in the direction of the prior uptrend. The time frame is ideally for the pattern to form and complete within 6 months on a daily chart. The cup will be a "U" shape (not a "V") that occurs near or at the top of an uptrend. The handle should occur just off the second top of the "U" shape, and normally completes within a month. As with any breakout, volume is expected on the breakout.

Target price is measure by the depth of the cup, from top to bottom. Expected time frame is measured by how long the pattern has taken to form.

Here are a couple examples to watch...

AXE

REMINDER- FREE ADVANCED OPTIONS OPEN HOUSE!!!

Want to learn more about the world of advanced options? The Option Addict will be hosting a free open house to all that want to learn more about advanced options. The presentation will be two weeks from today (October 22nd), and I would love to see everyone that is interested in attendance. Click Here to enroll for this presentation. Once you are there, click on "Enroll" to register. You do not have to be an Investools student to attend. Once you have enrolled, you will receive confirmation and instruction of how to join the event. Make sure you sign up now, before it fills up!

SECOND REMINDER- PLEASE, CAST YOUR VOTE!!!

I am still in the running for top business blog, top video blog, education blog, and podcast blog. I sure could use a vote since the voting ends this Friday.

All you need to do is click here, to sign up.

Once you do, Click here to cast your vote.

Recommendation: A win for me, will mean a win for all of you. Trust me.

Long: Today, it's fajitas.

Short: Operating machinery, such as a trading blog.

Disclaimer: If you don't vote, I will track you down with a dose of the following...

As mentioned, I wasn't able to fit all my ideas into a 10 minute video. I like to have a list of stocks that are trading at support or resistance levels. I watch these stocks for breakouts, which will normally occur within 1 or 2 weeks (some are already underway). A few of these I have been in for a while, or have recently moved into. Here are the tickers...

Support (Bearish)
HUBG, ROH, JCOM, FAF, LFG, MTG, AVY, VFC, AVTR, BWS, JCG, ATI

Resistance (Bullish)
HRS, ATU, CNX, BUCY, AXE, COL, COP, HES, ANW, AXS, TIF, FMCN, JRJC

Recommendation: This was easier than producing a video.

Long: Celebrity appearances in my comments.

Short: Celebrity appearances on my doorstep.

Disclaimer: This might be all for me today... Forecast is partly over-booked due to celebrity status.

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Unfortunately, employment kept me from being more proactive about blogging today. Missing 100 Dow points is like forgetting a friends birthday. It's not something you want to make a habit of.

This will be a pretty shaky week. Not for technical reasons, but for fundamental reasons. Most major companies report earnings this week. Make sure you know when and where your companies report, unless you are into that whole "Oh $#!+, surprise thing."

Speaking of fundamental reasons, I don't like the price action here in the market. Here is an intra-day chart. Fundamentals are the only thing that can keep our heads above water (below: SPX 20Day).

If you are not long GLD, or OIH, don't bother talking to me. I don't like being ignored, and if you are not reaping profits on the most bullish commodities on the planet, then yes, you have been ignoring me.

Speaking of profits, how could I not like the moves in TBSI, DRYS, SNP, VDSI, SII, DVA, SNDA, SLB and CNX?

My shorts performed wonderfully, most notably ZION, ATI, THQI, NCS, CPA, CAH, AVTR, GLYT, JCP and a few others.

I took down XOM. I felt pretty good about that. I won't discuss any more entries until tomorrows video though, so don't ask.

Next topic... BIIB. I can't imagine this being the case, but if you didn't sell yet, take a look my last takeover offerings I gave out early...UIC and BOBJ. As you can see, there is no upside left. Even when the price falls short of the takeover price, don't ever hold. Sell. I have tried this on a few occasions, most recently AH. If you can remember this takeover candidate I gave you earlier this summer, it was priced $4 short of the offering price, and I held for a few days only to realize what an idiot I was.

Don't get greedy.

Since China has been breaking my balls, I softened the blow by reducing my exposure. I see some softening in the "buy it all now before it bursts" department... therefore I am adapting to the potential risk. This wasn't a major sell off by myself obviously, the Chineese market would have crashed.

In closing, my bets tonight are on the New York Giants and the Boston Red Sox. I better hurry home before dinner gets cold.

Recommendation: Nil

Long: October Sports

Short: Cold Dinners

Disclaimer: The Giants and BoSox read my blog before tonight's sporting events.

Recommendation: A fine fitting tune for a day like today.

Long: Big Ass Winners

Short: Posts with too many comments

Disclaimer: Metallica owned 10,000 shares of BIIB, thanks to the Option Addict

I effectively caused another buy-out. Check out BIIB, or at least the after-hours quote.

You are welcome.

I just got off the phone with the CEO of Biogen and we both agreed that putting the company up for sale was a better alternative than a hostile take-over from the Option Addict. I am so proud of myself I am tempted to swear. How is that for a pre-cursor to a phenomenal weekend?

Speaking of a phenomenal weekend, I need your help. Apparently the competition is heating up around this "Best Blogger Award." I am not about to go down, and I am hoping you have my back on this.

All you need to do is click here, to sign up.

Once you do, Click here to cast your vote.

That's it!!!! Please!!! I am not going to get beaten in this competition. There is a lot more riding on this than I thought.

Recommendation: If you don't cast a vote, the market will take your money next week. I promise.

Long: Option Addict

Short: Competition

Disclaimer: I vote for myself regularly.

Rather than rant about what is working well and what is not today, I'd rather talk about yesterday. I am seeing a lot of questions coming through about "how I reacted" and asking "what I did" in response to yesterdays change in momentum.

I didn't panic.

In fact, if it weren't for a phone call yesterday, I might not have noticed.

The first thing I did was start selling off some of my positions. Primarily BIDU due to the downgrade. Once I noticed it was moving against me (thanks random caller) I reduced the position by about 60% to lock in some profits. That is what really pissed me off about yesterday, but keep in mind, my cost basis was $130 (Check my archives if you doubt me).

I added to MON. Did you expect anything else? I plan to make a market in the Nov's.

All of them.

I dollar cost averaged in only the best deals available, such as HANS, AMZN, ISRG, DRYS, FWLT, VDSI, PCLN and a few others. Being the great companies that they are, they decided to pay me back today.

I dismissed a few losers, and entered a few new positions...

However, I think many of you sometimes forget that I like to play things somewhat safe with my accounts. I stay diversified at all times, and always have a hedge against the market and or my account positions. Here are some examples...

Despite losing some big UNREALIZED gains, I made for a lot of them with nice blow-ups in ATI, LDK, SPN, ZION, RAIL, MAS, THQI, NCS, PAYX, CPA, WNR, CAH and PNR.

I also own Gold (GLD), which is intended to be a hedge.

And I always hedge with other instruments, specifically S&P Futures (Short), Crude Futures (long), and added to some Index puts on the Nasdaq (small position).

Yesterday was fine. Like I have always said, I try to put myself in a position where I don't care about the market. When I start my day every morning, I don't run to see what the market is doing, I run to see what my account is doing. I try to put the market in position where it is irrelevant to my account.

When I received this phone call that alerted me as to the change in the market, and asked how I was doing...I glanced at my bottom line and said, "Fine." Upon further inspection, I was able to make some necessary adjustments to moderate unrealized gains and turn them into realized gains, cut some losers and buy everything that was appropriate. Eventually it gets to the point where you become a well oiled machine.

Another day, another dollar.

The market was due for a little exhale, and I bought bullishly with confidence. If it were going to be a big deal, you would have seen a much bigger drop than we saw. Yesterday was an obstacle, and the Option Addict played though.

Recommendation: Cannonball often.

Long: Diversification

Short: Panic

Disclaimer: I cannonballed myself yesterday to relieve panic because I wasn't diversified.

Recommendation: Listen to the words... They go down smooth.

Long: The Good Times

Short: The Bad Times

Disclaimer: James Ingram loves the Option Addict

Looks like my MON Nov Call buyback plan was executed to perfection. This has become a MON-ster position, one of my largest single holdings with the exception of a few such as HANS, DRYS, BIDU, POT, PCU, FCX, GLDN, VIP, GLD a few casinos and a couple others that are not too far behind.

Speaking of MON-ster position, I have to give a shout out to Toni, for the best part of my HANS position as you can see below...

I also have to give a shout to Tonya, who also was so kind to help increase my position in Java Monster. However, the position has already been consumed. But a special "Thanks" to both of you for your generous contributions. I owe you one.

Today was the day I have been waiting for out of China. My positions in FXI, SNP, YZC, BIDU, LVS, WYNN, and a few others are responding nicely. This is where that whole patience thingy I teach really starts to pay off.

Other satisfying gains today include VIP, LDSH, CNX (last nights Mastertalk officially caused today's breakout), SII, EMC, CRK, COLM, TEF, JASO, FTI, GSF, MT, BEN, WNR, CPA, and NM.

If you haven't yet, join forces with me and take down ATW, KSS, PCZ, CAH and CNX today.

You can thank me later.

Speaking of thanks, for those of you who offered your nominations for the bloggers choice awards, thank you. If you would like to cast a vote, I have been nominated for 4 different catagories.

Best Business Blog, Best Video Blog, Best Education Blog, and Best Podcast Blog. If you would like to cast a vote, look for the icon below on my right hand column on of my site...

Or you can click here to access my page directly. Vote as often as you'd like, and in any or all catagories if you would like. Thanks in advance for your support.

Newsflash...

The Fed gets Hawkish! Did you notice a massive spill off just now? From what I am hearing, this is the cause...

"Looking at the economy, Federal Reserve Governor Randall Kroszner said in prepared remarks for a speech Thursday that the central bank's decision to cut short-term interest rates last month by a larger-than-expected half percentage point was expected to be "appropriate to offset the effects of tighter financial conditions on the economic outlook."

Along with a BIDU downgrade a few minutes ago, I just got in a real bad mood.

Recommendation: Don't blink!

Long: Realized gains.

Short: People that dick with my unrealized gains.

Disclaimer: You see what happens when it takes me three hours to compile a blog post?

Well, now that "amateur hour" has come and gone, and I have gotten my early morning trades taken care of, I guess I ought to talk about what is getting me riled up this morning.

By the way, ever wonder why they call the first hour of trading "amateur hour?" Yet, 99% of amateurs I have interviewed claim that the reason they don't trade in the morning is because of this nickname, and they don't want to be labeled as such. Disclaimer: The Option Addict takes more trades in the first half hour of a trading day than small Mutual Funds take in a Quarter.

Opportunity is opportunity.

Anyway, I still don't know what to do with MON. If you have any ideas, throw them at me. They posted a $210 million dollar loss this last quarter, and the stock still doesn't want to go down. Unbelievable. I started a MON Nov Call buyback plan. It has taken me most of the morning, and is going to totally ____ my cost basis. Oh well, better to gamble with winners than losers.

The biggest rush I have going today, aside from some assbag e-mailing me and telling me if he were my boss that he would fire me, is the price action that continues in my big gainers today. PCU, LVS, WYNN, GNK, FCX, ISRG, DRYS, BCSI, SOHU, ESRX, FWLT, JEC, PCLN, DVA, CNX and HANS.

Fire me?!

In the meantime, someone tell me not to keep sitting here and rooting for China stocks. This has been the single biggest source of free money I have found in the market over the last several months, and I would hate to see it start to slow down.

I've got another Mastertalk presentation tonight. A great suggestion from the blog about potential topics last week turned into a pretty good presentation. If you have any other ideas, lets hear them.

Recommendation: I might get motivated to vlog later today, but don't encourage me.

Long: Vlogging

Short: Blogging

Disclaimer: I don't need free money from China.

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Recommendation: Watch with caution.

Long: Three fingers of Monster Java this morning.

Short: Plenty this week, believe it or not.

Disclaimer: My videos have been watched by Mafia personnel, hence the new nickname.

Before I release today's video, I need to ask a favor from all of you. I need to get some good feedback on the following topic....

Would you see value in the ability to get access to your favorite instructor for one-on-one coaching, mentor ship or personal instruction? The all-stars like me, Josh Black, Mike Turvey, Dave Johnson, Sven Guru and Bootch Utley. The service would be served a la carte, meaning you could sign up for one meeting or several meetings until your goals or objectives were reached. This could include the developing of trading rules, building a specific system, mastering a particular strategy, etc. Do you see value in this service?

Could you please send me an e-mail with your thoughts? If your thoughts are good, bad or neutral, could you send me something? The e-mail doesn't need to be extremely long or detailed, I would just like to hear your thoughts.

Please send your responses to : marketcast@investools.com

Thanks!

Want to learn more about the world of advanced options? The Option Addict will be hosting a free open house to all that want to learn more about advanced options.

The presentation will be two weeks from today (October 22nd), and I would love to see everyone that is interested in attedance.

Click Here to enroll for this presentation.

Once you are there, click on "Enroll" to register. You do not have to be an Investools student to attend. Once you have enrolled, you will receive confirmation and instruction of how to join the event. Make sure you sign up now, before it fills up!

Recommendation: C'mon, even I registered.

Long: Free stuff

Short: Not free stuff.

Disclaimer: Professional Option Traders Have Already Enrolled For This Event.