Bears Crack First Wave Of Support

Aug. 06, 2013 1:45 PM ET
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Bears Crack First Wave of Support

12:45pm (EST)

Picking a market top is never easy but we have been bulls-eye accurate all year long in predicting where the market is headed and what the trend is. We haven't had much downside market action except for the one in June to a test to the 100-day MA's (moving averages) and there have been a few trading ranges along the way. While today's action doesn't make a trend, we have given you specific clues to watch for a pullback, or the possibility of another trading range before the next leg up.

The bears are pushing back a little in today's session as they have cracked near-term support that served as prior resistance. The Dow has hit a triple-digit loss and hasn't experienced a 100-point correction in over a month. The S&P 500 Volatility Index ($VIX, 12.61, up 0.77) is spiking but the bears will need to clear and hold 13.50 before the second wave of support comes back into play.

We have been bust this morning ringing the register on own triple-digit winners as we cashed in on MGM Resorts International (MGM, $17.07, up $0.52) big move today. We often remind new subscribers if a stock moves 5%, up or down, there is a good chance at making a 100% return on the options. Shares of MGM are up 3% but were up 8% on the move to $17.67 on the open and where we locked-in profits. The near-term call options we recommended in late July gave our readers profits of 135% and 102% in just 1 week. Powerful stuff and why we love trading options.

Today's action is bearish but we have seen late-day comebacks by the bulls in recent weeks. The dip buying was alive and well on Friday but it wasn't there yesterday as volume has dried up. Monday was the lightest trading day of the year and today isn't much better.

While we do believe there is a chance for higher highs, we are ready to play a downside move if needed and we do have a couple of put option trades in place to profit from a possible pullback. The good news is we are showing tremendous gains for the year and our portfolio is light and up over 100% YTD. This will allow us the flexibility to open and close new trades based on the trend.

There will be some Zombie speak later this afternoon as one of the bearish Fed Heads will be speaking out on stimulus and possible taper talk. With the other zombies away for their month long August vacations, and economic news light this week, there could be some volatility as the Fed zombies try to claim their 15 minutes of fame and influence the market.

Our plan is to be patient and wait for the market to come to us.

As we head to press, the Dow is down 97 points to 15,514 while the S&P 500 is lower by 9 points to 1,697. The Nasdaq is off 25 points to 3,667 while the Russell 2000 is giving back 11 points and is at 1,051.

Subscribers, check the Members Area for the latest updates and stay on your toes for the remainder of the trading session as we could have more action if we see something we like or close out other trades.

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