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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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  • The Grexit Market: You Need To Think Like A Trader

    Happy Saturday Friends,

    I'm making this post available to everyone because it's more of an educational article, rather than a market outlook article. I'll conclude with some market-related thoughts at the end, but that's not the main point.

    The chart below, originally posted on Zerohedge.com, pretty much sums up how the week was. Grexit, and that's it. Prior to this week, at least we had news and speculation regarding the FOMC rate decision to distract the market from jerking in response to every news update from Europe. Anyway, here's the chart I was referring to.

    The bottom line is that Zeus, meaning the Greek's, could rain lightning...or ambrosia on the US equity market at any time, rendering useless your correct call on a term trade, whether that be long or short. Take a look at SONC (Sonic; they make amazing milkshakes) for a prime example of a bad matter exacerbated by Greek drama.

    We need to think like traders, especially in unpredictable markets like this. That means setting targets, taking your gains, and having hard stops. I say hard stops rather than mental stops because a news event could swing the market in a matter of minutes and your "mental stop" could be blown through during that time giving you no time to get out (did I mention the Greeks are having a referendum next Sunday? Pretty big deal.). More than ever, we need to take a "risk first" approach to trading and investing. For longer term investors, maybe dollar-cost averaging is the best approach now.

    It should be an interesting week.

    Bonus Chart: While most of you know I have several years background as a swing trader, I now trade size based on a long term system which analyzes money inflows and outflows. Money outflow has been pretty high in the past weeks, so I have been out of the market.

    (click to enlarge)

    Jun 27 10:08 AM | Link | Comment!
  • Is Our Market Bottom Here?

    Hello Friends,

    In my typical nature, I was quiet most of last week. However, I liked what the market was doing, checking my phone at the gym and mumbling to myself "burn baby, burn!". Disconnected selloffs between large and small caps on September 19th, when the DJIA made its most recent high, and then increasingly broad based and intense selloffs as the previous week progressed. By September 25th, over 90% of volume on the day was down volume, which typically doesn't happen that often and, usually occurs near short term market bottoms.

    For reference, take a look at the statistics for the selloffs last week. That would be September 22nd, 23rd, and 25th.

    • Sept. 22nd: 80% of stocks declining, 84% of volume down volume
    • Sept. 23rd: 69% of stocks declining, 70% of volume down volume
    • Sept. 25th: 81% of stocks declining, 90% of volume down volume

    Of course, by September 25th, one could see headlines all over local non-financial newspapers and the evening news. Sounds like a edgy investor base to me, and a broad based panic on the 25th.

    But let us not base our analysis on only the qualitative aspects of last week, what do the numbers say? Interestingly enough, one indicator which I follow closely (simply the 3 Day Moving Average of Declining Issues/ 3 Day Moving Average of Total Issues) was suggesting we were due for a rebound on Sept. 22nd. Any reading above 65% during a bull market normally occurs near a short term bottom. My other indicator, which measures investor capitulation over the short term, however, said that there was not quite enough panic yet.

    But by Thursday evening however, the indicator was screaming buy at the top of its lungs. In fact, it had reached the most oversold level since 6/24/2013 (the day of a market low), and prior to then had not reached that level since August and October of 2011.

    Complimenting this was a reading above 65% from my other indicator, and what is known as a 90% down volume day. For more information on 90% down days, check out this article.

    So, it looks like our bounce is here. And , with few signs of longer term weakness (outside of the micro caps and some small caps), I'll venture a guess and say we will be seeing some new highs in the days ahead. Happy trading!

    For more articles like this one and for actionable option trading ideas, come visit us at OptionMillionaires.com

    Sep 28 9:01 AM | Link | 1 Comment
  • Short Term Internals Still Point To Higher Prices, But There Are Some Longer Term Red Flags Appearing

    So it looks like we are again in rally mode, with the major indices up again today. The small cap Russell 2000 Index pushed above its 200-day moving average and gained an impressive 1.47% by day's end. The large cap indexes performed well too.

    So what next? Will the Russell 2000 again try to rally, but fail again at its early March high? See the picture below. The resistance point is right around 1210 on the index.

    (click to enlarge)

    Meanwhile, will the large cap indexes continue to make new highs? At this point, it appears both scenarios are likely. First, to be clear, all of my proprietary measurements of the internal health of the market point to further gains in the days ahead (short term). These gains will likely be broad based, with momentum stocks and high beta names gaining the most.

    It still seems, however, appropriate for small companies to continue to underperform over the intermediate term, given the length of the bull market and the higher valuation of various small cap indexes (versus large cap indexes). There are a few technical patterns which seem to be supporting my speculation.

    First, two weekly charts with their respective RSIs. Notice the negative divergence in the Russell 2000 RSI, but not the S & P 500. That's a testament to large cap strength, and perhaps a leading warning for continued small cap weakness.

    The S & P 500

    (click to enlarge)

    Then the Russell 2000

    (click to enlarge)

    The Russell 2000, which is comprised of small and typically more "sensitive" stocks is showing signs of internal weakness. This is confirmed by continued weakness in the NASDAQ Advance-Decline Line.

    (click to enlarge)

    So, what does this all mean? In short, bought the dip, enjoying the rip, but keep an eye on your small and micro cap stocks, since signs of weakness are starting to appear. By all means, don't go shorting anything, but just don't be surprised if the small cap underperformance continues into the weeks, or even months ahead.

    ~D

    Aug 18 7:36 PM | Link | Comment!
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