We often remind our readers that it is important to have a road map on where you feel the market is headed over the week, month, quarter and for the year when evaluating option trades. As long as you do chart work, and follow the clues that are left, you should have pretty good success following the indexes.
Sometimes on flat days or in trading ranges, the talking heads and suit-and-ties will lose focus and go with market’s flow. This often leads to confusion and why you may or may not take profits or cut losses earlier than planned.
We mentioned back in mid-December the market looked as though it would push higher into January but the Debt Cliff caused a slight trading range with some movement to the downside during the Christmas holiday. The pros pulled out and many of them sold their positions to close out their books for 2012 and left for the holidays flat or out of the market.
The clues we said to watch for were the VIX, the Dow Transports, support and resistance levels, sentiment, the small-caps, the XLF and historical price action which included the Santa Rally and the first 5 days of January.
This why it is important to really read and focus on what we are saying not only for the market but for the option trades as well. We have gotten off to a quick, nice, profitable start for 2013 and as we continue to unwind positions near the top, we will have time to take a breather and see if there is another leg higher, if we get a pullback, or, the mother of all corrections.
The headline risks will pick up in the next few weeks but we have said it is possible the market could rally into month’s end. Our fluff targets we reminded you of this morning have been incredibly accurate and we doubt many newsletters or market pros picked these levels back in December.
We can’t wait to dive into the charts this weekend to do our homework but predicting where the market will be in a month or 2 will be pretty tricky this time around with the zombies coming back into the mix. Next week promises to be exciting as we have a number of big name Tech’s in play and the market enters the heart of earnings season.
The trading course manuals, How to Trade Options on Momentum Stocks, should also be ready next week as we approved the final copy for the printers and they are on track to be at your doorstep by month’s end. We are also working and doing research for a new video that will also be out over the next week or two so look for it as well.
We mentioned today’s action could be bearish but given yesterday’s nice pop the slight pullback was expected. We still believe the bulls have more room to run and that a “blow-off” top rally or surge is coming before a possible pullback. However, if the bulls stall at current levels then we will need to start preparing for a pullback and start looking at put options.
As we head to press, the Dow is down 20 points to 13,575 while the S&P 500 is off 4 points to 1,477. If 1,475 holds into the close we will be happy. The Nasdaq is lower by 15 points to 3,120 and we would like to see a little rebound to 3,125 into the closing bell.
Wall Street will be closed on Monday but we will be sending out our Weekly Wrap that night and we will be back Tuesday morning with our next edition of the Daily. Subscribers, check the Members Area for the current updates and we will see everyone next week. Until then, have a great weekend everyone!