Charts and More....

Futures this morning are point to a slightly higher open, and it seems that Obama’s speech last night put some optimism back in to investors.

Long term I see a market that will be higher at least making new highs within a few months. Below is a chart of the $RUT on a weekly basis, and the current candle is indicating a reversal back higher. Again the reversal candle is sitting on an uptrend support line swing low. But the only problem I see is that the advancing declining line is showing a negative divergence, with could turn out to be very important, if investors are not willing to buy new highs the markets will crack.

The S&P chart looks as good if not even better than the $RUT chart on a weekly basis. But the same problem occurs; the A/D line is signaling a negative divergence. I would like to see the $SPX close above 1100.

Trade Update RUT Condor

New Trade update

Yesterday I sold an iron condor on NDX, and I think the implied volatility will continue to come out. So I sold premium when I had a chance, and I will keep you updated on this trade.

Russell

Yesterday’s price action was not that convincing, but it wasn’t a slug fest all day so that’s good. The reason yesterday was not convincing of a turn or a bottom is because of the volume. Yesterday’s volume was light, not coming near any volume level we’ve seen in the past as people bought the dip. I would like to see the $SPX close above 1100 and for volume to pick up a bit before I feel confident about this market moving higher.

The $RUT is a totally different story, and I feel more confident about the $RUT right now than any other indices. Yesterday’s price action is very bullish for the $RUT as it created a Doji like candle right on an uptrend support line. If small cap stocks rally the rest of the market will too, but if the $SPX is weak I would guess the $RUT will not be as weak and would most likely outperform in the coming days.

1-2-3

Futures this morning are pointing to a higher open, and a Ross 1-2-3 formation could be in the works to take us back down. Joe Ross is the Yoda of technical analysis, CLICK HERE for the PDF document reviewing the 1-2-3 formation and the Ross Hook.

/ES

I just wanted to give you some insight on what I'm thinking, I have been hearing a lot about the correction scenario and about the buy the dip scenario. I have been talking about the correction scenario for the last few weeks. I think what we are going thru is very healthy and it allows the bears to capture some profits and it allows the bulls to buy at a better price. When I first started to trade the first thing that I learned was things don't just go straight up or down. That everything needs time to breathe and retrace and make lower highs or higher lows.

I believe that this is a buying opportunity, on the chart below is the /ES and I want to highlight the extreme volume at times of panic, and all it does is leads us to higher prices. I think "the pullback into a buying opportunity" is the scenario on the table right now. Watch the 1100 level for that round number support.

Ascending Triangle

The dollar is setting up an ascending triangle, this is a bullish chart pattern, but first we would need to see price come down and test the uptrend line. This could really be a text book setup; if we get a pullback to the uptrend line on down trending volume we could witness a big move in the dollar. Once we get a price break of the horizontal resistance two things should happen (1) volume will break the down trend and we will see a big volume day (2) price has a high probability of retracing back to the top if the pattern, then lifting. If this turns out to be true risk assets are going to be taken to the wood shed.

Chew on this...

The last two days have been pretty intense and we are in the midst of a correction. Now the buzz is that the Obama administration is proposing more regulation on financial institutions to remove risk and cut down on “too big to fail”. It kind of sounds good, but it brings to much uncertainty, and that is way there is fear on Wall Street, just my 2 cents.

Yesterday the S&P broke the sideways channel support, falling to my next support point of 1114. 1114 is a very important place to hold if the bulls want to take back the gains. 1114 is also where the 50 day moving average sits, a break of that would be a sign of further weakness. But I don’t think we will hold, fear is a strong emotion and with a lot of fear in the investment world the odds of a pullback/correction has a higher probability of happening. Especially since traders have been expecting one, profit taking is most likely the case for weakness. This brings me to my next support level, 1085. 1085 is the bottom of the channel made from November 10th 2009 till December 21st 2009. That is also roughly a 5.50% pullback from the 2010 highs. 1085 is not out of the picture yet as a target, but we first need to violate the 50 day moving average.

Also volatility could continue to hit the market, I added to my long Vega trades and will not set any more credit spreads until I think we have touched bottom.

Iron Condor

Trade Update

Yesterday I exited my butter for a profit of 15.75% net. I also exited my double diagonal up 7.28% earlier in the week. So far income trades are working very well, I currently still have my condor on and my calendar on. I will keep you posted on those two trades.

It’s that time again; time to set high prob condors. Below is what I will be setting today.

Credit Spreading

Today I will start the bread and butter portion of my trading, the credit spread. I will be focusing on the $SPX this morning, and moving on to other instruments later in the week. I feel there are dozens of ways to set a credit spread, some people might sell a certain Delta or sell to receive a specific credit. I will normally sell almost anything 10% below the market and 6% above the market. Another way to do this is to sell below support or above resistance or sell 2 standard deviations below and 1 standard deviation above. The ways to do this are countless, but I stick to the percentage rule because I like consistency, but selling 2 standard deviations below the market is about 10% on the $SPX.

Spread Update Time

On January 7^th I set an iron butterfly and received a credit of $32.00, I sold the 1135 and had 45 point wings. Currently this trade is trading at $29.35 that’s a $2.65 profit. Below is the risk profile of my trade.

5 Week

Happy weekend everybody!

S&P finished lower on expiration Friday, and we are about to start one of only a handful of 5 week expiration cycles. Anything can happen in a 5 week cycle, and it feels like traders are going to try and push this thing lower. To make this clear, I am not a directional trader, so I’m not on the sidelines praying for lower tape. I am simply writing how I see it, and I see a retracement to 1115/1120. That’s not a massive move, but it will strengthen the market in the long run.

Currently the market is trading in a tight channel, not much to talk about. Keep your eyes on any violation of either of the channel lines.

Have a great weekend and I will see you on Tuesday.

Angry Broker from CNBC

Thoughts

Resilient, that’s what the market is, and with earning season started, seems like we be more resilient or will we?

Volatility levels are low and indicating a lot of complacency in the equity market, but if theres so much complacency why aren’t people buying? Volumes are low and I think since volumes are low volatility is going to price in the contentment investors are or might be feeling. If investors were as complacent as volatility was suggesting we would see more volume in the market, people buying hand over fist. We all know that’s not happening, but since the credit crisis there is less money to invest, less funds to trade and less confidence from the retail investor. But from July 2009 till now is when the volumes have really started to decrease, and the market was rocking higher at that point. At some point volume will rise and so will the volatility. I still believe that the market is going to continue a sideways slug fest until volumes increase and volatility returns to its normal mean reverting tendencies. Delta neutral trades will still rule the market, at least for the time being.

I will start posting my technical opinion again once the market starts doing something interesting. Until then I will continue to post my trades and any adjustments that might come.

GS Earnings Spec

Most of the time I trade index options, because of the great tax benefits and more premium per contract. I do however watch a handful of stocks and one that I trade actively is Goldman Sachs (GS). Looking at the chart, GS has not done much over the last few months, but IV is starting to rise. Earning are due 1/21/10 before the market opens, and I want to get long Vega. There is two ways I can achieve a speculative long Vega position; long straddle/strangle or calendar spread. After going over the risk and reward I feel like a directional calendar will suit my risk apatite. Picking the direction is a whole different discussion, but I will set it with long Deltas.

One thing I would like to mention is that Meredith Whitney has made only one good call and since she made that one good call she has been some sort of “guru”. I don’t believe she should even be announcing her thoughts or advising investors. I will never listen to that woman and her ridiculous call on GS or any other stupid call she makes on the banking industry. Or just like the “Commodity King” Dennis Gartman, he also only made one good call, but it’s because of that one good call people think he’s a "guru". But really if you listen to him on fast money or any other show, his calls are pretty bad. Whatever he says do the opposite, he even called Warren Buffet an idiot, now that’s down right wrong. So if you are going to listen to anyone, listen to yourself.

Below is the GS trade I will set today.

$RUT

Futures this morning are pointing to a lower open currently trading at 1135 down 7.50. Today could prove to be a great day with a volatility pop. And for all you who like trading by the moon and stars and psychic palm readings I have some pretty good superstitious info. Twice a year my dad goes to Dallas Texas for a trade show for his industry, and twice a year, ever year when he goes the market sells off, he is leaving today. Based on this seasonality the market should start to tick lower. I would NOT trade based on this info, but I thought I would post it for traders that like that sort of thing.

Currently I have on a Feb/March $RUT calendar that I purchased for $8.25 with a short strike of 640. The $RUT is trading around 643.99 and with the pull back that we get today and a volatility increase, this position should look good.

$SPX

The S&P has been up five days in a row, and the probability of a pull back is increasing. When we get this pull back I think that it will be a buying opportunity, a lot of people want to get their money working (especially at a lower price) and I think the pull back will be over just as fast as it started.

IV is not doing much, but the $VIX is well below $20 currently at $18.13. With earning season right around the corner, we could see an increase in IV levels and a long straddle on your stock of choice could turn out to be a great trade.

Currently I have an iron butterfly trade on the $SPX, and I received a $32.00 credit. My short strike is 1135 with 45 point wings. I feel like everyone else (which might be a bad thing) with predicting a sideways market and a low volatility market for 2010. Things could change, but at this time a sideways market makes since to me.

Floored

2010

Well its 2010 and 2009 is dead and gone, and I have a new and improved trading plan that I have been working on since last year. I will still be trading Delta neutral option strategies, but with some small changes. Every trade that I set in my personal account this year I will post, kind of like I have been doing, but with additional info on every trade.

As for the market, we started out this week and New Year very bullish right out of the gate, but everything has its pros and cons. The pro is directional trades are performing very well and a lot of credit is due to the big Mutual funds buying on “Mutual Monday’s”. I don’t think that Mutual Monday’s hold a lot of weight with real market strength. In other words, I think big money is propping up the market with new buying for the year. This brings me to the con, the higher we rise without a pull back or correction, the faster we fall and markets participates will panic. This is the trustiest statement, healthy markets need to stay healthy with pull backs and corrections.

Technically I think the $SPX will pull back, price is resting on an overhead up trend line with limited upside until we pull back.