Courtesy of Phil’s Stock World
I think David Fry hit yesterday’s action on the nose saying:

“Is the recent downturn in volume because Goldman’s computers were shut down for fear they were compromised?  Of greater importance to average investors is a dirty truth is revealed. Give Wall Street banksters a gaming stake (TARP) and what do they do with it? They give it to their HAL 9000 to trade the hell out of markets. Would you like a free trading stake and the computer to do it? Even though it would be self-defeating in the end, of course you would.  Okay, enough about that although it should provide plenty of interesting reading. Today markets were wishy-washy on continued shrinking volume. That brought out the “stick save” crew (perhaps HAL activated) but market internals remain weak.”

That’s an interesting take – did the market slide because Goldman Sachs, our market-manipulator in chief, had an internal system problem allowing the unmanipulated commodity markets to quickly slip down to more “real” levels without anyone to goose them at key junctures?  I always say to members, when the technicals are working – obey the technicals and in yesterday’s post I predicted we would bottom out in the morning at Dow 8,250, S&P 888, Nasdaq 1,750, NYSE 5,700 and Russell 488.  We did bottom out at about 10:45 and our lows for the day were Dow 8,205, S&P 886, Nasdaq 1,770, NYSE 5,686 and Russell 487 – not bad for a call I published at 8:30 with the futures considerably higher.

It’s one thing to call the market correctly but quite another to turn that call into a profitable trade.  We only made one play in the morning and it was our 10:24 Alert to Members, which suggested the DIA $84 calls at .70, which finished the day at $1.05 (up 50%), that’s not bad for our first trade of the week.  We also cashed out our FAZ plays at the dead top when my second Alert of the day at 10:52 suggested to Members: “FAZ – Good time to take the money and run at $5.38.”  That was exceptionally well-timed as the high of the day for FAZ was put in just a few minutes later at $5.40.  The EU markets held our watch levels so we made our first trade in the brand-new $5,000 Portfolio, buying the AA $7.50 callls for $1.75 at 1:10.  The idea is to turn them into a spread but they already made a dime and if they make .50 we’re more likely to just take them off the table and not risk earnings.  The goal of this portfolio is to make a series of quick in and out plays using various option strategies around earnings announcements – risky but fun!

We played for the stick-save into the close and we were not disappointed as we got a respectable 50-point goose in the Dow in the last 30 minutes of trading.  We may like to point out that the markets are being manipulated but don’t confuse that for negativity.  One of my favorite saying is: “We don’t care IF the markets are manipulated as long as we can figure out HOW the markets are manipulated and play along with the big boys.”  To that end, we maintained a bullish stance into the close (still very much in cash though) as we expect some follow-through this morning.  Our bounce targets are now this morning’s “must hold” levels and they are: Dow 8,260, S&P 898, Nas 1790, NYSE 5,750 and RUT 493.  We are not expecting a huge move today, just some consolidation ahead of tomorrow’s data.

It doesn’t pay to be emotional in a technical market, you can’t get too attached to a position and our trades are very quick in and outs from our cash positions.  David’s Oxen Group Trade of the morning was a huge winner as well, calling a short on WFR, which dropped over $1 from the open and that’s our 5% rule for a stock day trade – it doesn’t get any better than that!  We also featured 2 new trade ideas in our Channel Checkers section on HOG and HOTT based on the research reports.  So, after sitting on cash for almost an entire month, earning season and a higher VIX have gotten us interested in trading again!

Today David is looking at ERX, which is a 3x energy bull index that is heavily weighted with XOM, CVX and COP so think of it as more of an XLE tracker than an oil or services index.  Rather than a straight play on this ETF, I like buying the Oct $25 calls for $4.85 and selling the Aug $25 calls for $3.30, which is net $1.55.  If the energy market fails, you don’t need to retain much value to get out even and, if it goes higher, you don’t owe your caller back $3.30 until the ETF is at $28.30 and $3.30 is enough to roll the Oct $25 calls down to the Oct $20 calls, which would put you in a $8.30 spread for net $4.85 so a great trade to practice your rolling on.

Phil’s Stock World provides frequent intraday news updates similar to this one to members. As part of a special opportunity, readers of The Market Guardian blog are offered a free subscription. Use referrer code “Braunie” (which is included in the links here) and select the $49 per month option and – using my code – your $49 subscription will be free (monthly fee will be waived) and you will receive a 20% discount on premium services, should you find Phil’s Stock World to be a valuable resource. Click here to sign up.

Courtesy of the Oxen Group

The Oxen Group recommends a purchase of Direxion’s Oil and Energy Daily Bull ETF (ERX) for Monday. The oil market may be ready to make some positive gains on Monday, which should light a fire under this ETF. Oil is looking slightly bullish on Tuesday to begin with because of a technical correction that is needed. The market has fallen over 10% in a week, and prices have moved down too low, too fast. A lot of sellers have sold and are becoming buyers again. Gerard Rigby of Fuel First Consulting believes oil is ready to move back to $70 per barrel as the economy is in the same place and there really is no reason for it to move down any further. He believes the profit taking and correction is done. At least for tomorrow, this makes sense. Tomorrow, there is really no large economic news once again and no primary earnings, which should send the market into a similar seesaw it was in today…Read More

Get all the updated market discussion at the Trader’s Blog.

Big Hat Tip Trading Wall Street Investments

David Rosenberg comments on retesting!

Over the last year, we have seen four other testing phases
and they all failed as the market did break to new lows.  Under the proviso that
the S&P 500 hit an interim peak of 946 back on June 12 (it’s down over 5%
since), here is what the recent historical record tells us to expect (at a minimum,
take profits).

• The average length of the testing phase is 53 calendar days and 38
business days (versus 45 calendar days and 33 business days for the
interim bear market rallies).
• On average, the S&P 500 undergoes a correction of more than 20%.
• The sectors that led during the rally, corrected most during the selloff.  This
means that financials, consumer discretionary, materials and industrials
should underperform in the next few months, while health care, consumer
staples, utilities and telecom services should emerge as the leaders.
• Market volatility more than doubles, on average.
• Bonds rally, with the 10-year Treasury note yield down nearly 15 basis
points, on average.
• The flight-to-safety during these periods implies that the Canadian dollar
declines (on average by 10%), while the trade-weighed U.S. dollar rallies
more than 6%.
• Commodity prices decline an average of 15%, again as cyclical trades
unwind.
• Corporate spreads (Baa) widen an average of more than 60 basis points; it
is very important to be focused on high-quality paper during these market
testing periods as high-yield spreads widen, on average, by more than 300
basis points (and keep in mind the vast outperformance, which is typical
during bear market rallies).