Wow!

liz

How long before we see 1375?

- Todd

The S&P 500 EQUAL WEIGHTED index looks even worse.

I'm not challenging you, Jeff, and believe me i think we're going lower, but this isn't a double top until we close below 1400. We could just as easily bounce off 1400 and head all the way back up to 1560 or so and remain in a wide channel for 5 years. I think we definitely test 1400 sometime pretty soon, and then i think 1375 for the trendline/horizontal test would be next.

Am I correct?

Jeff,
I was just looking at this myself while you were posting it. The bif "R" is on the way. Be a part of it. Position for it. The dollar is falling like a rock, oil is going much higher, and credit woes will turn to absolute sobbing and crying. Being long anything, except puts, can be detrimental to your health. I think 1375 is where it is all going and will stagnate there for more than a year. This is not doom and gloom it is a cycle and we are in the down side of the cycle. Get your investments on the short side of the markets.

FIGHT ON!!

Your thoughts made me feel a little better about myself..I have been on the wrong side all week.

Isn't diversification just as important in a bear market as a bull? I've been hearing people say it's too risky to be long anything right now, but isn't that the same as saying it's too risky to be short anything in a bull market? Or is there a separate set of rules for a bear market? The 35% of my portfolio that is invested right now has a bearish bias, but we are still dealing with a market of stock, yes?

From the prior thread:

I didn't get NIHD, but I caught UA at the high for a Dec $50 put. It's doing nicely. ISRG however. I don't have any good calls right now, but the puts are off setting. Wonder if there will be an afternoon rally?

Barbara

Jeff, your idea of sharing your experience on bear markets is a good one. It is looking that we will be there before most soon.
FWLT is assuming post position in the starting gate!

Thanks Jeff and REBIGDOG. I have been fighting the trend with my calls, but I felt I needed to be a bit balanced when the rally's happen. I just need to be quick to take profit, like ISRG yesterday when it was up $11 plus.

Barbara

Happy Thanksgiving everyone!!

Jeff,
While trying to study earlier bear markets, my prophet charts don't show implied volatility before 2005. How do we analyze that part of the puzzle?

Also, what do you think of the options on the QID and SDS? Seems like the liquidity is picking up on those issues.

Jeff and all,

I'm a little tempted to can the calls and just go with puts, since my calls are only losing money right now. But I'm thinking that the 25% I try to have in calls is a sort of insurance premium if the market whips around and heads up. Any input on this idea? Am I nuts to hand money over by buying a call or two in addition to the puts, or is this still wise money mgt? Thanks for any input.

All,
Now that lunch is over in the east....will the traders, i mean bears, continue to drag the markets lower??? Thoughts...

My thoughts are that we rally into the close, bounce again friday, then return to retest 1400.

Those are my thoughts, though they matter about as much as the penny does.

This 1430 area is like a magnet right now. The market makers look like they are trying to keep this thing around there to keep some retail buying.

I just can't see being anything but properly position sized for more downside. The last part of the down move iss always the most painful for the bulls.

We'll see.

Cassie- Just as when people were crying when the bull market turned on them because they were heavily net long delta, the same will happen to the bears when the market turns around. I believe Mr. K is about 75/25 bearish in his holdings right now, meaning he holds bullish positions as well. Even in a lousy down market there are still stocks going up, just as in a bull market there are always stocks going down. Diversify and manage your risk. Although it's just my style, I am luvin' this volatility. Great for day trading and selling premium. Careful though, it can be like walking through a minefield. Good luck and good trading.
Stan

All,
"This doesn't Look Good....is this where the bulls make a stand??? or is the bear market continuing. I wonder exactly what the OA (JK) is trying to convey???

FIGHT ON!!

Cassie,

Don't do it!!! I know, it's so tempting to not have any calls. I too lost a lot lately with NYX, ABB, BEAV, SPWR... and the few that is performing is not really doing that much CVD, FCN, BYI, IVGN, SYNA ... but they haven't broken support. Look into these.

I remembered the lessons from just a few weeks ago when I had all calls and lost over 50% in a matter of days. And then Jeff came out and straighten us out. The market can take a turn at this support level, go straight up for a few days before it come crashing down again. You never know. Besides, it's a market of stock, not a stock market. Pick well and good luck.

Geez, writing this kind of affirms what I should do as well. Thanks for posting the question.

Good heavens, this is like watching paint dry.

Cassie,
I have only one call and it's on APA. As long as it doesn't break my diagonal trendline, I'll hold onto it.

I have three straight puts and one, NILE, is currently working against me. In this environment, it's good to be hedged. For me that means just scaling way back in position size and positions in general.

HTH

Jeff,

Thanks for the warning, I was just starting to get comfortable with the bear market. I just looked at the $SPX daily from a few years back, it was indeed very choppy and that the price patterns don't always confirm. I will spend more time on individual stocks this weekend to see if it's any different. Too bad you can't see the intraday charts anymore.

Happy Thanks giving to you and your family!

Jeff,

I know from your posts that in order to adjust to the market conditions now we need to cut down on positions, may be not take as many positions and be ready to take profits earlier. You had also mentioned that being an option buyer with this high volatility is harder. Because of this do you also try to take more ITM options now then in a generally lower volatility environment? For example if you saw a setup now that you would have 6 weeks ago taken an OTM option on would you buy and ITM option to off set the overall volatility, and just buy a smaller number of contracts? ?

I got booted out of my 3 long positions last week, so I'm just short 4 positions right now. I'll start looking around next week so see what looks good. I'll take Jeff's suggestion to look back. Very bad memories of that time - stopped trading for 6 years becasue of it.

Cheers

Anu,

Good question!

Some ripe trades for today (many are Kohler favorites):

AGU and SGR are both confirming head and shoulders tops with a nice downward-sloping neckline.

AUXL is coiled up like a rattlesnake, hugging that lower trendline nicely.

BYI broke out yesterday and is holding the breakout nicely.

DRQ is ready to erupt upward.

JEC is very interesting, since your first inclination is to call it a topping pattern. However, it's also bounced off a strong lower trendline.

MICC is holding its trendline with a beautiful candle today. If this triangle does break out, you're way out in front of it.

STP is a phenomenal solar stock and is still within a large ascending triangle setup (the intraday is clearer)

WLT is holding horizontal and trendline support.

Don't get me wrong, I'm bearish like everyone else. But that should never keep you from going against the grain. There's so much bearishness out there, and we have sold off so hard so fast that we could get a decent move up before the eventual move down. 1400 is only 25 pts away and nibbling here may not be bad. Nothing moves in a straight line forever. Also, look at the Vix today. Not a lot of fear accompanying this move toward prior lows.

Does anybody know if there is a way to plot math functions on the Prohet charts? I would like to make some better intraday A/D and breadth charts. Ideal charts would be $ADVN - $DECN and $UVOL - $DVOL. Presently I use comparison charts and watch how the line pairs spread/contract/crossover. I would really like to look at single lines.

Is anybody else watching the H/S bottom forming on RIMM -- see 30min charts. This morning's higher low just rounded out a shoulder; I'm watching for a breakout above 115.

Also, i want to point out the candles on the indices yesterday and today. Yesterday we had massive spinning tops, and if we did get hammers today, that would point to a decent reversal move. If those 2 candles were confirmed Friday or Monday, we could see fireworks.

Again, obviously the line of least resistance is down, but after such a strong selloff, your initial inclination is to sell everything. That's usually the sign that the selling is nearing an end...for now.

Could we continue straight down? Of course. But if you're overly bearish in your account and at risk of a strong bounce hurting you, consider taking some profits here.

Anu,

The risk of taking ITM trades is having more capital at risk, and having an option that is more sensitive to price movements. If the market weren't so volatile, I might consider it.

I still like OTM options here because they are cheap, and I can manage risk well with them (risk 100% premium). Plus, as they become near the money (quickly) then I see a big increase in time value.

However, I don't encourage anyone to trade like this as it has the lowest mathematical probability of success (disclaimer).

As an alternative: I always endorse option selling when the VIX is printing numbers in the high 20's...even though I rarely do it.

Jeff,

I have been watching this double top pattern forming(I believe there was chat w/early bird on this last week). I'm watching closely. However like Brett, I'm also prepared for short and sharp bounce if we get one.

Happy Thanksgiving everyone.

Jeff,

So because the ITM is less sensitive to Vega and they are more sensitive to delta and we can lose more there given the highly volatile price swings. I think I see that. But with the OTM if we get price moving to the direction we want but suddenly the overall volatility drops don't we risk not getting a movement in the option? Do you ever go any more than one strike out? Is there any advantage in doing this in this environment or even the less volatile times??

Anu,

Yes, it is less likely you won;t get a move in the option unless you get a huge move in the stock, but there is less capital at risk. And even if the market moves against you, an OTM option will still have a little bit of value left.

Jeff,
Years ago I can remember the $SPX and the $INDU trading as 10 times or 10% of each other. Now, within the past 5 years...a 15% to 20% spread has erupted. For instance, if $INDU is at 13,000 then $SPX should be around 1,300. Intraday today 2pm est $INDU @ 12900 and $SPX @ 1426. $SPX 150 points higher than what it may have been in prior years. Is this what you have called divergence in the market? i used the Investools comparison chart feature to come up with this. If the Dow 30 hold up and the S&P 500 retrace (could it be a bit tech heavy?) Then the markets would move in conjuction with each other and steady volitility..Thoughts...

FIGHT ON!!

Regarding 5yr $SPX charts, yes I see a double top. However, I also see a long diagonal resistance that touched the peaks of '04 through mid '06. It then became a support when we blew through it during the long rally at end of '06. Since then it has been a support line that is on its third test right now. We could actually rally up to a new high if it bounces here. Hard to be optimistic right now, but we have to go where the chart leads us...

On the other hand, step out the the 10yr monthly and see that this month is the second from the worst red candle in the past 10 years...

Jeff,

Is there any advantage then in going two strikes out to risk even less capital or is that a even bigger risk because then you need more then a huge move to make these profitable?

Stan, Grace, Laney and Brett,

Thanks a lot for your comments. You helped wake me back up to rational thinking. I appreciate it!
My remaining call is SYNA (got stopped out of ABB, BEAV & PCZ). It's a relief to hear others having some challenges with otherwise good set-ups, too. Them's the breaks. I'll stay with the put-call mix program. Thanks, all.

Jeff

i just want to take a quick second and tell ya....i have always loved the blog, i have learned sooo much here, but i must say the content you have shared with us the last 2 weeks or so is amazing!!!! i feel like i have learned more in the last 2 weeks than i have all year.....you are awesome !!!
you will never know just how much you have helped me along the way....you are the lantern that will guide us through this market no matter which way the tides turn....

THANKS

ps. my old room mate email me this quote and i think everyone can appreciate it..

~ 20 years from now you'll be more disappointed by the things you didn't do then by the things you did ~

;-)

Cassie<

If it makes you feel any better, I just got into SYNA. :-)

How about BG right at resistance and heading down from Head and shoulder. this was a JK Reco. It sounds like a trademark right ( JK reco)

Anu,

I apologize if I am being redundant because I haven’t read your entire dialog with Jeff on the OTM/ITM issue but here is how I have been playing it. I haven’t been going ITM because of the price sensitivity issue.

I have been trading OTM options almost exclusively in this market environment. Since I have a smaller account and have been taking on smaller position sizes, it has been the only alternative if I want to be involved. I will go pretty far out of the money in the higher priced stocks. On the downside, it has worked very well because I am only looking of the value of my option going up, very rarely seeing the stock getting to my strike price. This doesn’t work on the bullish side too well because the IV issue. If I find a bullish trade that I want in on, I have been buying stock if the IV is real high since the IV tends to go down as the stock goes up.

If you buy puts at real good entries, they are usually after a retracement of sorts. Then the IV usually goes down. As the stock goes down, the IV typically goes up and you get the best of both worlds, an increase in IV and the price closer to your strike price.

I hope this helps a little.

John

Exit Strategy on AMLN

Looking to help with developing my exit strategy so I was hoping for some confirmation from the group. Got into Jan $40 put for AMLN on Tue. After review of the downtrend I expect to exit if the close is above $40. On the down side I expect to see a drop to $37.50. Any comments or help?

Anu,

Don't go too far OTM, unless you are dealing with a higher priced stock, and expect hugh moves.

Eric,

Good idea on the exit at $40, however, I think it is likely to test the 52 week lows as opposed to stopping at 37.50.

Logan,

Thanks for the comments...spot on.

David$,

I think we should patent that (JKReco).

Tonya,

Thanks for the props, and you are welcome.

Everyone else, look out!!! (shaking sarchastically) the market is starting to get bold here!

I'm calling CY the buy of the century here. Awesome company, ridiculous selloff, owns a decent stake in SPWR, so it has major solar exposure. Love the bounce off $28.50 horizontal support and the huge reversal candle.

I'm not saying buy it, but just watch it. Will it retest old highs at $40? Probably not tomorrow, but i think it's a great buy. When you've waited as long as I have for an entry on a stock, and you get it, sometimes Christmas comes early (thanks Jodi for that quote).

Jeff,
Any opinions on RIMM?

I see head-and-shoulders bottoms getting close to breakout at $115 on 30day/30min charts. Pattern height is 15 points, so nice price target. What about some OTM December paper?

Thanks,
DaveW

Just got back from the store with all the fixens and trimings for turkey day and just caught up with all the chat on the blog. if it helps anyone 2 to 3 weeks ago I just wasn't paying attention and was over 1000 positive delta and got wacked, lost a lot of money.

So I huckerd down and payed very close attention to all the wisdom Jeff gives and every one else. Today I am 150 plus delta with a very good mix of of puts and calls, about 70/30 and I've gained not all but a awfull lot of my losses back thanks to this blog.

If I can give any advice I would say stay diversified, be quick to act to the market, quick to cut your losses, don't be afriad to take some profits. Theres a ton of wealth here people so listen to it close and as Jeff suggested study,study,and then study some more.

Hope you all have a great turkay day and please leave a tibit of what your thankfull for this holiday in the Chit-Chat forum.

Dave,

Those stocks will be the most volatile if these conditions persist. I would consider daytrading them perhaps, but not something I would hold overnight.

Thanks Logan and Jeff. Getting more and more of the puzzle pieces together daily. Wishing all of you guys a terrific holiday. See you on Friday.

Thanks Jeff, I may day trade RIMM if it breaks out. Looks like it won't be today. However, intraday is coiling up. Their options are liquid enough for a day trade.

DE looks interesting. Their report was well received today. Making money abroad when the US is slow...

Volume indicators show $DVOL putting a whooping on $UVOL towards the close

I had a wager this morning on Dow -200...here it comes!!!

Jeff,

BRS - Is this a bull flag? or has this stock turned over? Another set of eyes would be greatly appreciated.

Exit on AMLN

Jeff thank you for the confirmation on the $40 exit and the 52 week low suggestion. When looking at the 2 year chart I definitely see an area of support at the $37.50 to $35.50. So my next question we be, do I watch for the close below $37.50 and then if it does not close again above $37.50 let it ride down to a bounce? Then do the same at $35.50? The reason I ask is the many conflicting comments about don't call the bottom, but also draw your line in the sand for the exit.
Thanks,

Jeff,

Thank you for not just giving us a weekly watchlist, but for reminding us to be diversified, position-sized for the market, using the right time-frames, and to be students of the market. In short, thanks for teaching us how to consistently make money!