(click to enlarge)

The waterfall decline I've been expecting has essentially now been satisfied (Red line). The Cycle has run into the 25 day range and is more than ready to print a Daily Cycle Low. Technically gold is oversold to the level where DCL's have comfortably formed. From this point forward it should be argued that a Swing Low would hold a very high chance of confirming a DCL.

But my overriding problem is with the shape and feel of this decline. It's a waterfall alright, but it's a controlled one, and that is not normal. This 7 straight day losing stretch has knocked off over $100, but it came with little panic, average volume, and a lack of capitulation selling. I want to see this positively, so it could well be a low volume and diverging (technicals) retest of the April 16th,$1,321 lows. But I honestly can't say that for sure, my experience with gold Cycle Lows tells me this is too tame. For this reason we could see one or two more real capitulation sessions (Green Line) that pushes gold down into the $1,200's, and that should mark the final ICL.

This as is an excerpt from the Midweek's premium update from the The Financial Tap, which is dedicated to helping people learn to grow into successful investors by providing cycle research on multiple markets delivered twice weekly. If you'd like to receive real time alerts as well as the most up to date reports, you may want to take their FREE 15-day trial to fully experience what they offer. Coupon code (ZEN) saves you 15%.

Related Posts:

Equities Are Dangerously Overbought

True Test Is At Hand For Equities

Extreme Percentage Of Newsletters Short Gold

The following is an excerpt from the weekend premium market report by All About Trends. Enjoy a free 15 day trial to their service to get daily stock picks, market analysis, and a complete trading plan.

"While we all know the indexes are severely overbought in all time frames and frequencies the last 4 days has been more of back and forth with no real progress."

And then came the famous "Into The Close " Pump that blew the whole sideways consolidation out the door with the break into a new high again. IBM had a lot to do with that as it was up pretty big on the day and makes up 17% of the Dow. That's in the short term. What about the bigger picture?

Last week one of our subscribers said:

"DOW & S&P are also in new territory. We've never been here. No map. No idea how high we can go. No technical guidance."

Yes, right he is however. Technically speaking under the surface from a chartists point of view we actually do have a pattern to work off of. Albeit rare as they only show up at the end of major runs in the markets and that means major runs to the downside and major runs to the upside and they are called a few different things. Namely climax runs or blow off tops.

Let's take a look at a chart from the past to see if there are any similarities to the current run.

(click to enlarge)

(click to enlarge)

Think about it this way. We all know most airplanes have what are called ceilings. That's the point at which a jet engine gets starved of oxygen due to too high of altitude. Ever hear of the phrase "thin air up there"? Same deal. At some point (sooner rather than later) the air is going to get real thin up here. We've seen it before and we'll see it again. A point in time will come where the market sells off and in doing so wipes out WEEKS worth of gains in short order.

Good we say as it allows for actually being able to buy names that have came down to lower risk entry points ala support or has everyone forgot that word these days. So don't be fooled into complacency here that the market is never going down just because it hasn't yet. We at this point are going to let cooler heads prevail at this point and BE EXTREMELY SELECTIVE WITH A REALLY SHORT TERM LEASH on anything new on the long side.

Sure when one looks at the headlines it's looking pretty easy to make headway. BUT try putting NEW money to work. The extended stay extended and that's where the drive is, all the extended names with ZERO LOW RISK ENTRY POINTS TO BE HAD.

Related Posts:

Correction: Sideways Or Pullback?

Three Breakouts To Watch

Pause Would Do Markets Good

Both of these index charts could pullback to green moving average (68) and remain in a very strong uptrend. I'm not suggesting that is going to happen as the correction could just as easily be that of a sideways nature, but the markets will have to digest these gains one way or another.

(click to enlarge)

(click to enlarge)
The mere fact I'm even looking at Gold through bullish tinted glasses is a monumental shift in bias from the past 3 months. I don't think it's a buy here, but I think it could be getting close. Don't interpret my hint as bullishness as an all out load the truck signal. Far from it.

(click to enlarge)

Deep thoughts here. I liked this passage so I thought I'd share.

The Universe is not of itself suspended aloft without sense or reason or guidance, nor is there one reason which rules and guides it by rudders, as it were, or by controlling reins,but, inasmuch as Nature brings, in this life of ours, many experiences in which both evil and good are commingled, or better, to put it very simply, Nature brings nothing which is not combined with something else, we may assert that it is not one keeper of two great vases who, after the manner of a barmaid, deals out to us our failures and successes in mixture, but it has come about, as the result of two opposed principles and two antagonistic forces, one of which guides us along a straight course to the right, while the other turns us aside and backward, that our life is complex, and so also is the universe; and if this is not true of the whole of it, yet it is true that this terrestrial universe, including its moon as well, is irregular and variable and subject to all manner of changes. For if it is the law of nature that nothing comes into being without a cause, and if the good cannot provide a cause for evil, then it follows that Nature must have in herself the source and origin of evil, just as she contains the source and origin of good. ~ Plutarch "Isis and Osiris"

Related Posts:

Pause Would Do Markets Good

Pyramid of Summerhill

Japan Looking Very Bubbly (In A Good Way)

Stocks and Options at a Glance

With just one look, it is now possible to see exactly which option strategies are currently profitable and which are not. Those who use option performance as a technical indicator can now see where the stock market is today (as measured by the S&P 500 index) and where it is likely to go next, with a simple "You Are Here" marker.

(click to enlarge)

*All strategies involve at-the-money options opened 4 months (112 days) prior to this week's expiration using an ETF that closely tracks the performance of the S&P 500, such as the SPDR S&P 500 ETF Trust (NYSEARCA:SPY)

You Are Here - Bull Market Stage 1

Stocks are now in Stage 1 of a mature bull market. Bull markets tend to progress from stage 0 to stage 5 and thenrepeat the process, beginning again at stage 0. Stage 1 represents an over-extended market, which often precedes a correction. The correction often occurs within a week or two, but Stage 1 has historically lasted as long as 4 months. The current Stage 1 began on March 9th.

There are currently no signs that the market is moving from Stage 1 into Stage 2, and the change sometimes happens without warning. Moreover, there is no time limit on any stage, so it is possible for the market to stay at one stage for several months, or to pass through several stages in a matter of weeks or days. In the case of a black swan event or a market crash, the market has at times passed through several stages within hours.

On the chart of "Stocks and Options at a Glance", option strategies are broken down into 3 basic categories: A, B and C. Following is a detailed 3-step analysis of the performance of each of those categories.

STEP 1: Are the Bulls in control of the market?

The performance of Covered Calls and Naked Puts (Category A+ trades) reveals whether the Bulls are in control. The Covered Call/Naked Put Index (CCNPI) measures the performance of these trades on the S&P 500 when opened at-the-money over several time frames. Most important is the profitability of these trades opened 112 days prior to expiration.

(click to enlarge)

This week, covered call trading and naked put trading were both profitable, as they have been for an extended period. That means the Bulls remain in control. The reasoning goes as follows:

• "If I can sell an at-the-money covered call or a naked put and make a profit, then prices have either been going up, or have not fallen significantly." Either way, it's a Bull market.

• "If I can't collect enough of a premium on a covered call or naked put to earn a profit, it means prices are falling too fast. If implied volatility increases, as measured by indicators such as the VIX, the premiums I collect will increase as well. If the higher premiums are insufficient to offset my losses, the Bulls have lost control." It's a Bear market.

STEP 2: How strong are the Bulls?

The performance of Long Calls and Married Puts (Category B+ trades) reveals whether bullish traders' confidence is strong or weak. The Long Call/Married Put Index (LCMPI) measures the performance of these trades on the S&P 500 when opened at-the-money over several time frames. Most important is the profitability of these trades opened 112 days prior to expiration.

(click to enlarge)

This week, long call trading and married put trading were both profitable. Both forms of trading became profitable in late January. It means the Bulls are not only in control now, but they are confident and strong. The reasoning goes as follows:

• "If I can pay the premium on an at-the-money long call or a married put and still manage to earn a profit, then prices have been going up - and going up quickly." The Bulls are not just in control, but they are showing their strength.

• "If I pay the premium on a long call or a married put and fail to earn a profit, then prices have either gone down, or have not risen significantly." Either way, if the Bulls are in control they are not showing their strength.

STEP 3: Have the Bulls or Bears overstepped their authority?

The performance of Long Straddles and Strangles (Category C+ trades) reveals whether traders feel the market is normal, has come too far and needs to correct, or has not moved far enough and needs to break out of its current range. The Long Straddle/Strangle Index (LSSI) measures the performance of these trades on the S&P 500 when opened at-the-money over several time frames. Most important is the profitability of these trades opened 112 days prior to expiration.

(click to enlarge)

On March 9th, long straddle trading and long strangle trading reached rare and absurd levels of profitability. Such levels normally precede a correction. That does not preclude a possible move higher prior to the correction though. Although rare, the market can, and historically has added gains for as long as 4 months or so, even after the LSSI has indicated that the market is "Due for a Correction"

On May 11th, the LSSI again exceeded the +4% limit that normally precedes a correction. While no technical indicator is correct 100% of the time, over the past 10 years a correction of at least 5% to 10% in the S&P has always ensued within 4 months or so after the LSSI initially topped 4%.

Here in May 2013, we are now more than two months past that initial date when the LSSI topped 4%, which would suggest that we have very little chance of getting to July without a correction.

The correction will occur, eventually. An elevated LSSI has always led to a correction in the past, and there's no reason to suspect this time will be an exception. It's just a matter of how long until it occurs. The reasoning goes as follows:

• "If I can pay the premium, not just on an at-the-money call, but also on an at-the-money put and still manage to earn a profit, then prices have not just been moving quickly, but at a rate that is surprisingly fast." Profits warrant concern that a bull market may be becoming over-bought or a bear market may be becoming over-sold, but generally profits of less than 4% do not indicate an immediate threat of a correction.

• "If I can pay both premiums and earn a profit of more than 4%, then the pace of the trend has been ridiculous and unsustainable." No matter how much strength the Bulls or Bears have, they have pushed the market too far, too fast, and it needs to correct, at least temporarily.

*Option position returns are extrapolated from historical data deemed reliable, but cannot be guaranteed accurate. Not all strike prices and expiration dates may be available for trading, so actual returns may differ slightly from those calculated above.

Questions, comments and constructive criticism are always welcome. Enter them in the comment box below, or send them to OptionScientist@zentrader.ca.

The preceding is a post by Christopher Ebert, who uses his engineering background to mix and match options as a means of preserving portfolio wealth while outpacing inflation. He studies options daily, trades options almost exclusively, and enjoys sharing his experiences. He recently co-published the book "Show Me Your Options!"

Related Options Posts:

LSSI Index Says Fear Is Near Again

Introducing - Stocks And Options At A Glance

Possibly The Best Options Explanation Ever

Below are 3 stocks that popped up on my momentum scans yesterday that you may be interested in if you trade breakouts. I especially like EGLE as it's an earnings move that had a massive gain. This will likely be higher 4-6 weeks from today.

Never mind that they are pulling back a little today as that is normal profit taking action after stocks breakout.

(click to enlarge)

(click to enlarge)

(click to enlarge)

Related Posts:

Pause Would Do Markets Good

Pyramid of Summerhill

Japan Looking Very Bubbly (In A Good Way)

I'm not telling folks anything they don't already know. The current rally in the stock market is simply too much of a good thing. But when everyone else gets caught up in the buying frenzy, it can make those who doubt the current rally's sustainability second guess themselves.

Ask yourself, "Does the current level of the VIX accurately represent my level of fear?" For all of you who know there is something not quite right going on, but can't quite put your finger on it, I give you the LSSI (Long Straddle/Strangle Index).

The LSSI is normally published here weekly. Take a look at the chart. See how long the LSSI has been above zero? (since late February). Now look at how long the LSSI has historically remained above zero. (seldom more than a few months). And what causes the LSSI to fall back below zero? A correction in the S&P 500, typically at least a 5% to 10% correction.

A positive LSSI has a habit of preceding corrections in the S&P. An LSSI exceeding 4% is especially significant, and today the LSSI stands at +4.8%. Will the S&P break its 10-year habit? More importantly, do you want to bet on it?

Questions, comments and constructive criticism are always welcome. Enter them in the comment box below, or send them to OptionScientist@zentrader.ca.

The preceding is a post by Christopher Ebert, who uses his engineering background to mix and match options as a means of preserving portfolio wealth while outpacing inflation. He studies options daily, trades options almost exclusively, and enjoys sharing his experiences. He recently co-published the book "Show Me Your Options!"

Related Options Posts:

Introducing - Stocks And Options At A Glance

Possibly The Best Options Explanation Ever

Lottery Fever Infects Stocks And Options