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Option Millionaires was started in February 2008 to provide traders with information about option trading. Led by three career option traders, whose pseudonyms are JimmyBob, UraniumPintoBeans, and Vantillian, they started one of the most popular option trading communities on the web. Now, Option... More
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  • On Balance Volume Signing Major Market Warning For Months Ahead

    By Christopher Diodato

    Normally, my analysis is focused on short-term, exact predictions, but not in this post. Ever since the August 2011 mini-panic, pundits have been calling for a new bear market. Obviously, they were early, but we cannot dismiss the importance of this decline, even over a year later. During that decline, the market printed some of the highest negative weekly volumes since fall of 2008. During that nervous August, the influx in selling volume indicated an enormous rise in selling pressure in the market. Those same measures of selling pressures, not recovered from the August collapse, are still telling investors to be cautious.

    The chart below shows weekly data of the S & P 500 ETF with the On-Balance Volume (OBV) study on the lower graph. The OBV is calculated by adding the index's total weekly volume if the index's price finishes higher and subtracting if it falls.

    (click to enlarge)

    Generally, the market OBV will top before the actual index does. This is typical. In idealized Wyckoff market top, a high volume downward correction is very common before the market makes its final high. That high volume correction drives the OBV down so much that the measure cannot make new highs. That is our warning. This signal also provided warnings before the 2000 & 2007 market tops.

    In addition to the OBV divergence, note the actual volume statistics. Since 2009, the market has been trending upward. However, volume has been consistently falling, especially on rallies. In fact, as the market rallied in August, some of the lowest trading volumes in years were recorded. Then, a glance at shorter term charts shows that volume has been increasing on declines and decreasing on rallies. In short, the demand that has been propping up the market is stalling out.

    Frequent readers know my opinion. One more rally, then head for the emergency exit.

    Happy trading!

    ~Chris Diodato

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Nov 01 10:35 AM | Link | Comment!
  • Short-Term Trade – Western Union (WU) Flag Breakout (Video)

    By Chris Diodato

    It's Friday, and the end of another exciting week of trading is upon us. Looking through my stock screeners, I found that Western Union (NYSE:WU), looked ready to break out to the up side.

    (click to enlarge)

    Now this is a short-term trade, as I expect the broad market to top very soon, and with that, most stocks. We are looking for a quick 7.5% gain to walk away with. Take a look at this video for the analysis and the strategy.

    Happy trading!

    ~Chris Diodato

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Oct 19 10:14 AM | Link | Comment!
  • Apple – Ready To Bounce In Near Term - Targets Inside

    By Chris Diodato

    Every market technician saw it, and every technician raved about it, as Apple, the darling stock of the world, formed a bearish head and shoulders top. The breakdown began last Friday, as the market leader pierced through the bottom of the major support level at $655.

    (click to enlarge)

    Yes, the target is down at $600, but very often, this pattern will pull back, shaking out weak sellers. With bullish divergences in the RSI right now, and a very bullish candlestick pattern, it looks like it is ready to do just this.

    (click to enlarge)

    And in the daily chart, you can see the candlestick pattern, known as a hammer. This is a signal that demand has once again stepped in and has taken control in the market. It's a short term pattern with short term implications.

    (click to enlarge)

    I have the target in this chart at around $655.37. The time target would be around October 12, which conflicts with my October 23rd top prediction. Therefore, I suggest to use $655.37 as a "minimum target" for trading purposes. The second target would be at $674.62

    Now remember, these are just my thoughts for the short term. With the breakage of the head and shoulders pattern last week, the active target is $600. That's the longer term target. Here, I am just trying to forecast the fluctuations until that point.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Oct 09 9:27 PM | Link | 3 Comments
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