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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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  • Elliott Wave Analysis Of The S & P 500 – New Market Projections

    Before the August rally took the S & P 500 to new highs, I was convinced, within an Elliott Wave framework, that the bull market was over. My analysis showed that the 2011 high was a market top, and then the new highs shortly after that were corrective waves of a much larger bear market. That scenario was invalidated in the beginning of last September, and with no other probable bearish counts, the bullish scenario was activated.

    So here is where we are right now, according to my analysis.

    • The bull market starting in 2009 is a correction of a larger, deflationary bear market (especially in real terms. Did you know that the market is still over 35% lower than the 2000 high in inflation-adjusted dollars?).
    • ^^This scenario^^ would be invalidated only if the S & P and Dow could break above their 2000/2007 highs in nominal or real terms. Then another long term, secular bull market has begun.
    • Therefore, our wave count for this "corrective bull market" will take the form of an "A-B-C" wave, rather than a "1-2-3-4-5″ wave.

    (click to enlarge)

    • Still, with no valid bearish wave counts in the short term time frame, the market should still rise, giving a naive (just using the last few bullet points and logic) target range of anywhere from the current S & P level of 1466-1576.

    So, you may have figured out the bad news, which is that under this scenario, less than a 10% profit is still "up for grabs" by simply investing in the S & P. Therefore, it is important to invest in strong sectors at this point (Materials, Industrials, Financial) , rather than just buying and holding an S & P ETF.

    Using my analysis, I have come to the conclusion that we get one last proverbial "kick at the can" before the market tops. Instead of, however, focusing on individual wave labelings, let us just present the key target levels for the index.

    First, using a simple proportion target projection method, we have two targets. The immediate target, which I am confident will be touched is 1501. The second, 1566, given the current upward momentum and breadth of this rally (i.e. most stocks are rising), should also be touched. That will be the final market topping point, only 10 points away from the maximum of our naive target range.

    (click to enlarge)

    Now, if we use Elliott waves, you will find that each rally since fall of 2011 covered the same amount of price territory. That's three rallies in a row, so i do not think it is simply coincidence. It is expected then that this rally be the same exact magnitude. Here is the chart.

    (click to enlarge)

    Now, ordinarily, I would not say that this point will be the market top, but I am still working under the premise that this bull market is a long term correction, which means the SPX cannot rise above its 2000/2008 high. If that level is actually broken, well, back to the drawing board. Even if it is though, the current target still sits at 1552, and it will act as a strong resistance level.

    What's the time frame for this? I'll answer with the idiom, "Sell in May, go away!" No, really. Look at the RSI, and other indicators of overbought/oversold. If the speed of this rally continues at its previous pace, an overbought reading should be printed sometime in early April/late March that will eventually reverse the market by May.

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

    Jan 05 8:27 AM | Link | 3 Comments
  • Cabot Oil & Gas (COG) – Technically Ready For A Breakout

    Good afternoon everybody! Hopefully, everyone had a wonderful holiday and is ready to get back to this confusing market. The fiscal cliff has once again taken the front seat, but the technicals still call the entire ordeal as a non-event.

    The state of the market in the short term, however, is still vulnerable to an overbought downswing, which could last until early January. During this downswing, we should look to buy stocks that have been relative outperformers, which would be expected to continue outperforming into the next rally.

    One stock I found, Cabot Oil & Gas (NYSE:COG), fits this criteria. The energy sector, as a whole, tends to exhibit similar behavior. During bull markets, the sector is relatively flat until inflation starts to become a problem. Once inflation kicks in, the sector shoots off like a rocket. Watching bond prices, it looks like this inflationary time period is about to start.

    COG, on the other hand, has outperformed the market for years, even when the energy sector was underperforming. Therefore, in a technical position to break out in the short term, and an economic position to outperform in the long term, COG's a buy.

    To see the video analysis, including price targets, entry points, and stop levels, click here. Remember to switch to full screen HD mode for the best viewing experience!

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

    Dec 26 3:22 PM | Link | Comment!
  • Genworth Financial - Here Comes The Correction! (Technical Signals)

    By Christopher Diodato - TradersBase.com

    I must say, the GNW call might have been my best trade year to date, rising over 30% in under four weeks. That said, with such a parabolic rise, there has to be a correction around the corner. For those who bought with me in November around $5.50, the consecutive 3-5% daily rises have been exciting, but it seems that sellers have stepped in. The stock is, for at least the short term, now vulnerable to a decline. Here's what I'm looking at.

    Long Term

    From the long term perspective, GNW still seems like a strong buy, with a breakout from a two year descending triangle pattern, and other, shorter term breakouts from bullish rectangle continuation patterns.

    (click to enlarge)

    Still Likely To Correct

    The price action today showed that supply had stepped into the market, with a long legged or "rickshaw man" doji on high volume. Price advanced to new intermediate term highs this morning, flattened off, and then fell back to opening levels. While, still up nearly 3% for the day, this action of sellers stepping in during late afternoon is alarming.

    In addition to these supply/demand issues, price has been diverging with momentum on the 30 minute time frame.

    (click to enlarge)

    I have, at this point, correction targets at around $6.30, and then at $6. I'm still extremely bullish on this stock for the longer term, so I will likely just ease my current position (long $6 calls, short $5 puts) by covering my short put position, and then selling $6 puts once the price reaches those lower levels. If I see a break above today's trading range, I will be back on the bull train, if not, it's time to let the stock take a break.

    Happy trading!

    ~Chris Diodato

    Disclosure: I am long GNW.

    Additional disclosure: Holding a bullish synthetic spread on GNW

    Dec 11 9:14 PM | Link | Comment!
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