Bail-Out Plan Goes Down And The Market Follows

An amazing thing happened today...

A group of democrats walked away from their leadership in the House of Representatives and joined arms with a group of Republicans who walked away from their leadership in the White House, and they both agreed to vote down the bail-out plan.

Guess what?

We’re still here. Sure, the market sold off hard today but if you had been paying attention to this blog and studied up on options you likely had a few put options in your back pocket to make the it a bit less harrowing.

As we headed into the weekend, we were told that this bill had to be passed if we were to avoid a total collapse of our financial system. Yes, Wachovia joined the list of failed financial institutions. No sooner than it did, they were bought by J.P. Morgan Chase.

Don’t tell anyone, but I am no financial genius. What I know about the markets is earned from many years of investing, studying, and trading. The sum of my experience tells me that no matter how complex, or “creative”, or sophisticated finances get there are those who owe and those to whom it is owed.

The financial institutions that are failing are victims of their own actions. They loaned money to people they knew, or should have known, could not pay that money back under the terms it had been given to them. It was great fun when housing prices were rocketing skyward, but did they really think the party would never end?

Well, it did and the bill has arrived. So, who shall pay it?

On the one hand you have those who made bad loans, guaranteed bad loans, insured bad loans, and invested in bad loans. You also have those folks who took out loans that they knew, or should have known, they could never re-pay.

On the other side of the equation, you have the rest of the American tax base. The folks who go to work, pay their bills, pay their taxes, and struggle to get some of their income into savings and investments.

Who should pay?

Well, the first group can’t pay because they’re broke. The ones who took the loans they can’t re-pay are defaulting on the loans. The ones made, guaranteed, insured, and invested in the bad loans can’t pay because their portfolio of loans has imploded and the real estate they used to secure the loans is worth a lot less than it was when they wrote the paper. No one wants to loan them any more money, either. Why would they? Look at the mess they’ve already made. How could making more loans to that group make things better?

Oh. But, then there is the Federal government...

Let’s bail ‘em out. Let’s take on the $700 billion dollar mess, pick up these unfortunate “victims” and dust them off. We’ll just add that to the already staggering debt this country already owes. After all, it’s not like our generation will ever be able to pay it off. We’ll stick our kids and grand kids with that. Just like we stuck ‘em with the cost of bailing out Fannie and Freddie. Just like we’ll stick ‘em with a bankrupt Social Security and Medicare system.

Has it ever dawned on you that the Federal government is not very good at fixing financial messes? Has it ever occurred to you that the government is much better at creating financial messes?

I say to hell with the bail out plan...

What? But the world will end. Life as we know it will cease to exist! Or will it...

Will the credit markets dry up? Well, I imagine that those who have money to lend will become a bit more careful about lending it. I’m not sure that’s a bad thing, though.

Will the real estate market disintegrate? I’m pretty real estate will survive. There may be a period of time while foreclosure properties contribute to supply and keep prices depressed, but that’s a market economy and since when did we decide that government intervention in real estate markets is good?

The market is already sorting this mess out. Private equity is funding the purchase of assets at the failed institutions. Those asset purchases are being driven by profit motivations. Someone is going to make money from all of this. Those profits will need to be re-invested. That re-investment creates liquidity.

Oh, but the stock market is selling off and retirement accounts are getting hammered. Yep. But, it wasn’t that long ago that everyone was telling us how great 401k plans are and that we need to save and invest and we’ll all have a great future ahead of us.

The reality is that life is uncertain.

Investing, saving, and just surviving from one day to the next are uncertain endeavors. When crisis arises, we tend to run for shelter and look to the government to make it all better. It’s a peculiar response, because when all is said and done we are the ones who fund the government, along with paying our bills and saving for the future.

With that realization, I am quite comfortable having my representative government pass on this bail out plan. The only reason put forth why this bail out is necessary, or even just a good idea, is the notion that without it all else will come undone and our country will plunge into the abyss.

It’s fear mongering.

The real abyss is the debt this nation owes and the additional debt the bail out plan would create for taxpayers to pay-off. That’s the abyss I fear.

Here’s the bail-out plan I favor. Let’s figure out how to bail-out the tax payer. Let’s come up with a plan that eliminates the staggering debt we currently carry. Let’s agree upon a plan that saves our “golden parachute,” formerly known as “The American Dream.” Let’s bail that out.

I think we’ll survive the fall of Wa-Mu, Wachovia, and even Lehman Bros. The markets will bump and grind along, regardless.

What’s all this mean if you’re a trader?

It’s time to grow up children. It’s time to set aside the childhood fantasy of picking the next big winner. It’s time to learn how to manage risk, create a trading plan, and develop the discipline to trade in difficult market environments.

There is no such thing as security any where in this world. There is only opportunity, and despite the current propaganda our financial markets remain one of the greatest sources of opportunity any where in the world.

If you're inclined to take responsibility for your financial future, now is the time to "step up" to the plate and do something to make your future a bit brighter. McCain and Obama aren't going to do it for us.

My friend and trading mentor, Bill Poulos, is one of the guys that helped me "see the light" when it comes to trading. I've learned a lot of valuable lessons from him. If you're willing to study, work hard, and apply the lessons he teaches there is no reason why you can't enjoy a sense of confidence in your future, too.

Click here to learn more about how to trade in any market...

Washington Mutual And Bail-Out Fail

U.S. stock futures are pointed to a sharp sell-off this morning, after the proposed $700 billion bank bailout package stalled and Washington Mutual was seized by regulators in the country's largest-ever bank failure.

Yesterday, there was optimism that the bank bailout package would be passed. U.S. stocks rose higher, despite General Electric issuing a profit warning and reports that orders for durable goods had dropped. The Dow industrials closed up 197 points, the S&P 500 added 23 points and the Nasdaq Composite rose 30 points.

The bank package began to unravel, however. A White House meeting blew up in acrimony, with House Republicans refusing a demand from Democrats to come back to the table. The Democrats now insist they will not bring the package to a vote unless Republicans support it.

Adding more fuel to the conflagration, federal regulators seized Washington Mutual and sold it to J.P. Morgan. WaMu was the second biggest originator of "Option ARMs," which were marketed to borrowers via low introductory rates and included various payment options. Those loans often included the option to pay only interest, which caused the borrower's debt to grow with each payment, resulting in negative amortization. When housing prices began to fall just at the time rates were adjusting higher on those loans, borrowers began defaulting at alarming rates, leading to enormous losses for WaMu and others who had extended the credit or purchased securities based on that extended credit.

Make no mistake about it. Our nation's credit market is in crisis. Right now the financial markets are clinging to the hope that politicians can set politics aside and put together a sound bail-out plan. With the Democrats and Republicans at each other's throats in advance of the upcoming election, they may very well invest more time blaming each other for the crisis to win votes rather than working with each other for the good of the country.

With crisis comes opportunity, however. There is a great deal of volatility pushing option prices higher. These markets are no place for the amateur, but if you can avoid the whipsaws and sell-offs there is money to be made.

Mind your risk, and trade well.

Christopher Smith
TheOptionClub.com

A Total Market Melt Down Spurs Government Reaction

If you just returned from a week long vacation on an island, you would be wondering what all the commotion was about.

For the week taken as a whole, the market experienced just a modest rise. Stocks gained less than 1% — the S&P 500 up 0.3% and the Nasdaq 0.6%. But, that doesn't come close to telling the story...

This last week was one of Wall Street’s most remarkable and turbulent weeks in it's history. A week that overturned a financial order built over decades and changed the face of the financial landscape forever.

Lehman Brothers filed for bankruptcy. American International Group agreed to a bailout that ceded control to the Federal Government. Merrill Lynch agreed to be bought by Bank of America. With Morgan Stanley searching for a buyer, that would have left Goldman Sachs as the last big independent broker.

The week shook the foundations of the world financial system.

The London Interbank Offered Rate rose dramatically during the week, pointing to the reluctance of banks to make overnight loans to one another. At one point midweek, the yield on Treasury bills fell to nearly zero as investors raced to the safest of havens. The financial system seemed to be unraveling at the seams.

On Thursday night and Friday, the government took unprecedented steps to avert what some feared would be a complete melt down our financial markets. All of these problems had their root in large portfolios of defaulting mortgages. Those firms that owned those mortgage backed securities could not sell them, because they were being viewed as essentially worthless. These faltering firms did not have the capital necessary to avoid the losses.

Something had to be done to avert unmitigated disaster. Thursday, Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke met with congressional leaders. That night they began to craft a plan to buy those illiquid mortgage securities and then auction them off at some later date.

Details were not discussed, probably because no one has really worked them out. Friday's announcement by Mr. Paulson was short and he quickly exited the conference after fielding a minimum of questions. In lieu of details, the plan is being compared to the Resolution Trust Corp., that was formed after the failure of savings and loans associations in the late 1980s.

Money-market funds, a safe haven where institutions and small investors alike park cash, came under unprecedented pressure in their nearly 40-year history. The Treasury Department said Friday morning that it would activate a fund to protect money-market funds.

The Securities and Exchange Commission issued a temporary ban on selling financial stocks short. The ban runs through Oct. 2, but the SEC could, if necessary, extend it another 30 days. The SEC also eased rules to make it easier for companies to buy back their own shares.

The Federal Reserve expanded its emergency lending to allow commercial banks to finance purchases of asset-backed paper from money market funds. It also said it would buy short-term debt from Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

On Tuesday, the Reserve Primary Fund, the original money fund, was forced to write off $785 million in Lehman notes, 1.2% of its portfolio. As a result, its net asset value fell to 97 cents from $1, meaning investors lost 3 cents of every dollar. It froze redemptions after investors pulled out nearly two-thirds of their money during the previous two days.

That was the first time since Orange County, Calif.’s bankruptcy in 1994 that a money-market fund had “broken a buck.” The next day, Reserve announced that two other funds had broken a buck, including a fund exclusively for offshore investors that will return only 91 cents of every dollar invested.

It got worse. Wachovia’s Evergreen Investments, Bank of America’s Columbia funds, Ameriprise Financial, Legg Mason and Frank Russell Funds said they were either shoring up staggering money funds or stood ready to do so to prevent them from breaking a buck.

On Wednesday alone, investors yanked $89.2 billion, or 2.6% of total assets, out of money funds, which the day before held $3.44 trillion. The next day, Putnam announced that it was liquidating a money fund that was under pressure from redemptions.

So, there was a lot on the minds of investors and traders during Friday's session. Add to the fact that this was a quadruple witching trading day, the short covering, and you got the sense that anything could happen.

Whew! What a week, and less than a 1% change to show for it all...

Christopher Smith
TheOptionClub.com

Big Rally On Wall Street On Hopes Of Paulson's RTC

Wow. What a day we had yesterday. Talk about a wide ranging day!

This morning, the futures are up massively. Considering the sell-offs we've had this week, what the heck is going on?

It appears that the world's central banks are injecting liquidity into the markets and the U.S. Government is going to bail out...every body?

The rally was sparked by news reports that Treasury Secretary Henry Paulson might set up a facility to take on bad debts from banks, bringing relief to a sector battered by the financial crisis.

The Paulson facility reportedly would be similar to the Resolution Trust Corp., set up in the late 1980s to take over failed assets during the S&L crisis. It would let ailing banks take bad debt off the books and free up money for loans and other transactions.

Some news reports said Paulson spent part of Thursday pitching the plan to Congress.

Other reports said the plan might not mirror the RTC, or that it was just one of many possible options.

Paulson made no public comment.

Whether such an initiative could make it into law is another matter. Earlier, White House Press Secretary Dana Perino questioned the wisdom of crafting sweeping measures in the midst of the crisis. She added it might be difficult to approve a bill quickly.

Well, Pauslon is scheduled to speak within the hour. This should be a very interesting day on Wall Street.

We have what appears to be a very credible rally, but it also seems to be based on stories of what may happen. It may also be magnified by further restrictions on short selling. Be cautious.

Christopher Smith
TheOptionClub.com

Washington Mutual And The Big Independent Brokers Endangered

The futures are suggesting we'll see a little relief this morning, but keep in mind that we are going to continue seeing some turbulence in this market.

Washington Mutual has now put itself up for sale, following in the wake of Lehman Brothers, Merrill Lynch, and AIG. The failing thrift has hired Goldman Sachs to help find a buyer, with interested parties potentially including Citigroup, Wells Fargo, J.P. Morgan Chase, and HSBC.

Now, Morgan Stanley and Goldman Sachs Group are the last two remaining big independent brokers but Morgan Stanley is reportedly looking for a merger. You'll remember that Bear Stearns collapsed earlier this year, Lehman Brothers recently filed for bankruptcy, and Merrill Lynch shook hands on a deal to be acquired by Bank of America. With Morgan Stanley looking for a buyer, that would leave Goldman Sachs as the last remaining large independent broker. Can they survive?

I doubt that anyone saw this coming, at least not to this extent. The market's reaction has been turbulent and a lot of people are feeling the pain.

Over the last couple weeks, I've been posting links to materials that demonstrate now only how to survive these types of market, but how to actually prosper and grow your wealth when everyone else is feeling the pain.

Free Trading Report And Video Training

These training materials are all available at no cost, but will not be available in definitely. So, I encourage you to take advantage while you can and download the material now.

Christopher Smith
TheOptionClub.com

AIG Bail Out, Lehmans Remains, WaMu's Last Days, And You Prospering From It All...

Everyone who can, seems to be making a deal.

Insurance Carrier AIG Rescued By The Fed

Somehow, AIG was able to negotiate a federal bail out on the heels of the government turning it's back on Lehman Brothers. Apparently, AIG is just too big to let fail.

The Fed is extending an $85 billion dollar loan to AIG, but it ain't cheap. The loan is for just two years and carries a rate of 8.5% over LIBOR, plus the U.S. Government takes a 79.9% stake in the company.

AIG's CEO, Robert Willumstad is being shown the door, and will be replaced by former Allstate CEO, Edward Liddy.

Barclays Feeds On Lehman Carrion

Like a vulture swooping in on a dying prey animal, Barclays is gorging itself on the vitals of dying Lehman Brothers. In exchange for $1.75 billion, Barclays will purchase Lehman's assets, including its North American investment banking operations as well its New York headquarters and two data centers.

Washington Mutual May Be Next

It is being reported that JPMorgan Chase is a potential buyer for the ailing thrift. WaMu has seen its stock price battered as it slumps under the weight of a deteriorating loan portfolio. It's best bet to avoid liquidation is to find a merger partner.

Turbulent Markets...And Opportunity, Ahead!

If you spend any time in the office break room, you're likely to hear co-workers lamenting these difficult economic times, languishing investment portfolios, and an uncertain future. Get your coffee and move on because you do not want to fall into that mindset.

Tough times bring opportunity for those courageous enough and savvy enough to avoid despair and panic, and take advantage of the opportunities that present themselves. There are people making money in this market right now.

Free Trading Report And Video Training Materials Available

My friend and trading mentor has compiled some fairly extensive training materials that he is making available to traders on a complimentary basis for the next few days. The report is ready for download and the videos are being released on a daily basis.

Free Market Mastery Training

These materials are intended to demonstrate how you can not only survive tough economic times, but proper during them. Take advantage of them while they are available.

Christopher Smith
TheOptionClub.com

Bill Poulos Market Mastery Video

Today I have the first part of a five-part interview series featuring my friend and trading mentor Bill Poulos. The video is called "Mistakes Traders Make" -- and it's simple, easy to understand, and incredibly powerful thinking.

In this first interview session, Bill was asked about the mistake that people make by trading stocks (or Forex, or anything really) when they shouldn't. Bill's answer is so...simple - So simple, you'll probably ask "Why didn't I think of that?"



I'll be posting additional videos between now and Saturday, so be sure to check back here.

How To Get An Edge In This Market

Well, the DJIA made it above 13,000 last week, surrendered that psychological price level early this week, and now we're back above that mark.

As I've been saying all year, this is a difficult market in which to make money. There are those who are doing it, though.

How do they do it? It's all about having an edge...

This Thursday, May 8, 2008, at 6:00 p.m. PST (9:00 p.m. EST) Bill Poulos is hosting a complimentary one-time web-seminar. During the presentation he has promised to reveal a simple, but highly effective method that provides such an edge:

Attend The Webinar

If you would like to attend, just use the above link to register and reserve a seat for yourself.

Also, whether you can attend or not, you may also want to download the following report:

Download The Report

The report addresses several key concepts such as how to evaluate a trading method to determine whether it provides you with an edge. (See, p. 6.) Learn a simple but effective method to determine the profitability of a trading method. (See, p. 25.) Quite a bit more is covered, too.

Bill will pick up on these, and other concepts, in his live presentation. It's all about learning how to identify when you have an edge...and when you don't.

If you can make it to the presentation, Bill will cover all of these concepts and you'll also enjoy a rare, live Q&A session with Bill.

...BUT...

"Seating" for this event is limited. The web-conferencing platform can only accommodate so many attendees. If you're interested in attending, you'll want to save a spot here:

Save Your "Seat" For The Webinar

Once registered, you will receive a password that will give you access to the event this Thursday.

Trade well, mind your risk, and see you on Thursday evening!

Christopher Smith
TheOptionClub.com

Poor Corporate Profits And Inflation

A little more than half of all companies in the S&P 500 have now reported Q1 earnings. Outside of financials and home builders, profits are actually growing at decent clip. All in all, its not a very good earnings season but in comparison to last quarter it is a definite improvement.



Financials continue to be the main drag, with first-quarter profit falling 70%. Compare that to the fourth when they suffered an outright loss. Consumer discretionary profits also are down due to builders and other housing-related companies.

Excluding financials, S&P 500 profits are expected to rise 8.6%. Energy firms, riding record prices, should deliver 29% growth. Tech profits are rising 9%, easily eclipsing analyst forecasts.

Much of the earnings growth in the large cap index is coming from multi-national companies like Caterpillar (CAT) IBM, and McDonalds (MCD), which are benefiting from overseas sales growth due to the weak dollar.

The market has been firming, pushing prices on the major indices higher. The chart I've posted today is of the S&P 500, and you'll see that as of Friday's close we're now pushing up against the downward trend line.

This is crunch time for the market. Do we break through the trend line and start carving higher highs and higher lows, or do stock prices fall back and continue along the slope of this bearish trend line?

Obviously, only time will tell. I have been adding some positive deltas to my portfolio, however. Much of that is in response to an increase in negative deltas due to the market's push higher.

I've been cautious about selling too much put premium, for fear of a reversal. What I've opted for is to add some long call options, which in turn I've hedged. This "one foot in and on foot out" approach is due to the continuing uncertainty as to where we are headed.

The general consensus seems to be that our second half will see growth. However, with inflation now a real concern it is unlikely that we'll see much more than a quarter point rate cut from the Fed. Mr. Bernanke and company will need to shift their attention from concerns about recession to inflation.

This summer you can expect to see gasoline prices push into the $4 to $5 per gallon territory. We could still see growth in the second half, I'd just be cautious about over committing myself.

Christopher Smith
TheOptionClub.com

Evaluating GE Earnings And Friday's Stock Market Sell Off

General Electric released first quarter results on Friday, missing analysts' projections and it slashed its second quarter and full-year profit forecasts. This sent the broad market averages skidding on Friday, with the S&P 500 and DJIA both losing 2% and the NASDAQ surrendering 2.6%.


The chart I'm posting is a daily hart of the S&P 500, which demonstrates a red sell signal a couple days prior to Friday's selling. Consequently, I saw little damage to my portfolio. In fact, I benefited from the selling.

There is something worth paying attention to in Friday's action. First, let's look closer at GE's troubles. Most of the company's losses came from its financial services business. This renewed fears that there is still more pain out there for the financial stocks.


Second, all that selling came on reduced volume. This represents a divergence in the market, where the strength of the market was not behind the day's move. Keep this in mind as we watch events unfold over the next several days. This market may still get its feet underneath it and resume that push to carve out a higher high.

Keep you risk in mind and trade well...

Christopher Smith
TheOptionClub.com

Alan Greenspan Says Recession Is Here

Alan Greenspan has gone on record, offering his opinion that the U.S. economy is now in a recession. Boeing just announced further delays in the development of its new 787 Dreamliner. Oil and gasoline prices are pushing higher. American Airlines has canceled over 800 flights, on the heels of having canceled 500 flights just yesterday.

There is plenty of bad news out there, but how is the market responding to it?



Above is a daily chart of the S&P 500. We have recently found a bottom around 1,275, off of which we have recently rallied.

With all of the bad news, one might expect to see the market selling off hard especially in light of the pronouncement by our former Fed chief that the economy is in recession. Yet, doesn't look all that bad on Wall Street this morning.

Many have suggested that the worse case scenarios have already been priced into the market and that it is in the process of bottoming. That may be the case, but only time will tell.

Looking at the chart, you should pay attention to the trend line. It extends back to the fourth quarter of last year, when our bull market was blowing off the last of its steam. Since that time, we have failed to make a new high and the downward sloping trend line remains in tact.

Nonetheless, we have pushed through the 50-day moving average. However, it seems that our latest rally is losing momentum before reaching 1,390, our prior swing high.

The battle, as I see it, is between those who think we may have bottomed but do not want to jump into the market in case they are wrong versus the bears looking to again short this market but don't want to get short just before it busts through resistance.

We've got a stand off!

My sense is that if earnings show some evidence of resilience, the market will interpret that as a sign that things are not that bad and that we will likely see the economy firm up and return to a growth mode in the second half. In that case, expect to see capital return to the market.

The bad news is out, the market is not responding to it, and this is now all about the ability of corporate America to grow earnings. Someone is going to blink here. It may be the bulls. It could well be the bears. Whatever the case, we should pay attention to earnings on the fundamental side of the equation, price and volume on the technical side, and watch as this show down plays out.

Christopher Smith
TheOptionClub.com

Is A Recession Priced Into Stock Market?

Let's look back over Friday's activity before the markets open for today.

We had a very weak jobs report on Friday, but the market was not overly phased. Selling did take hold after news that the credit rating on bond insurer MBIA was being cut from AAA to AA. Friday saw a mixed close, on reduced volume.

The news that the employers had shed 80,000 jobs in March, quite a few more than expected, and that unemployment had jumped from 4.8% to 5.1%, the highest reading since September 2005, has fueled expectations and fears that the economy is indeed headed for, if not already in, a recession.

This morning's pre-market suggests a higher open, however. Last Tuesday we saw a nice upsurge with all of the major indexes notching gains of 3% or more. Why the bullish enthusiasm?

Bear market rallies tend to give up their gains quickly, but so far the market has been stubbornly holding onto them. Some market experts are arguing that recession and poor economic news is already priced into the market. It is true that the market is a forward looking creature.

If the market has priced in the likelihood of a recession and we are seeing buying based upon an anticipated turn around, then the market is predicting a short, shallow recession. As retail traders and investors, it is a bit expensive to fund our predictions with large commitments of capital. So, be cautious and make sure you have a plan to protect against a potential downward slide if you choose to get long at this point in time.

Let's see what the market has in store for us this week...

Christopher Smith
TheOptionClub.com

March Jobs Report Adds To Recession Concerns

The March jobs report came in this morning, and marked a third-straight drop in U.S. payrolls. This data further confirms recession warnings from many, including the Federal Reserve Chairman Ben Bernanke.

About 80, 000 jobs were lost last month. That's 80,000 fewer people working and earning money, than there were in February. Both January and February saw a loss of about 75,000 jobs. That's a total of loss of 230,000 in the first quarter of the year.

So, unemployment is now 5.1% and there is additional reason to fear a recession. The Federal Reserve will likely want to cut rates further, but they are running out of room there.

Yet, the stock market did not seem to care this morning. Since opening slightly higher, the major indexes have declined slight and are currently mixed. The DJIA and Russell 2000 are slight in the red. The S&P 500 and NASDAQ 100 are marginally higher.

It's going to be difficult to fuel a sustained rally if companies are not growing their earnings. That's the driver of higher stock prices. Fundamentals do not always control in the short-term, but they do eventually assert themselves at the "big picture" level.

I remain long term bearish, but throttled back a bit on my negative deltas as this (what I believe to be) bear market rally broke out.

Keep an eye on your risk, too.

Trade well.

Christopher Smith
TheOptionClub.com

Big Stock Market Gains On Fool's Day...

The stock market saw healthy gains yesterday. It was April Fool's day, though!

This morning, the pre-market looks like we may see a gap up. With Ben Bernanke scheduled to speak at 9:30 a.m. EST, it could be an interesting morning depending on what he says.

So, where are we?
We've go another green Trade Triangle on the daily chart. Recall that the weekly chart had been showing a green Trade Triangle. Ideally, we want these indicators consistent on multiple time frames.

On the daily chart, we bottomed out back in mid-March and I've been looking for a re-test of those lows around 1,275. The market seemed to be setting for that re-test, but yesterday's rally pushed through the recent swing high at 1,350.

I may want to start smoothing out my deltas, getting a bit more neutral. I've been maintaining a negative delta in light of the chronically weak market. Depending on how we follow up here I may be inclined to start reducing the negative bias and begin adding additional positive deltas.

One big day does not make for a rally, though.

Christopher Smith
TheOptionClub.com

First Quarter Comes To A Close

The markets are not heading anywhere definitive today. Everything is pretty much flat as the first quarter of 2008 is drawing to a close.

As we look ahead to Q2, there are still a lot of clouds on the horizon. I'll continue to keep an eye on the charts and on my market exposure.

Christopher Smith
TheOptionClub.com

Market Trend Analayis and the Traders Whiteboard Cont....

Good morning! It's Saturday and I have a 9:00 a.m. appointment with a trainer. Ever since I turned 40 it's like the warranty expired. I used to cruise into the gym, lift a little weight, jump on a stair climber, and I was good to go. Now I pay some young in-shape guy to inflict pain on me, and still slowly lose the battle.

I feel a little like Friday's market...

Friday morning, we opened up. In fact, the NASDAQ gapped up and advanced 1% during the first hour. It just wasn't meant to be, though.

All of the major indexes closed lower for the day.


We're still in a rally, but this market needs to get some momentum going if its going to break out of its current bearish trend. I haven't seen that momentum yet, and today I'm feeling pretty good about that call premium I sold.

But, hey! The guys on CNBC were saying yesterday that the bottom is here... Did you notice that red trade triangle come in there Thursday on the S&P 500? Could this downward trend continue?

Look back on the posts a few days. I posted a chart with Fibonacci levels, and surmised that 1,170 was not out of the question. Yeah, we've got to be questioning whether the bottom is really here.

Don't get me wrong... I don't mean to be negative, but my money is on the line here so I do want to be realistic and pay attention to the probabilities. Just spend some time thinking about what it would mean for you if we go to 1,170 and have a plan in place if that happens...

I spend a lot of time emphasizing why we all need to have some form of trading and investing plan. If you listen to CNBC for your guidance, you'll be buying the wrong stuff and the wrong time. You need some thing more objective.

That's one very big reason why I'm a fan of Bill Poulos' new course. It's objective. It's rule based. It filters out all of the noise and just focuses on what's actually happening in the market, identifying a trend, finding a safe point of entry, and then applying an effective money management discipline. Check out the review of ETF Profit Driver if you need more info on that.

So, with the idea of making ourselves more disciplined, more sophisticated traders, it is time for our 6th Traders Whiteboard lesson.

Now, if you've missed any of these just scroll back through the blog posts and you'll find the prior five. Those videos are still up, and each of them is just a few minutes long.

In this 6th lesson, we get into the interplay between fundamental and technical analysis. The whole video is a little under 7 minutes in duration, but it touches upon a couple key concepts so it's time well spent.

Come back tomorrow and I'll have a seventh trading lesson for you...

Have a good weekend!

Christopher Smith
TheOptionClub.com

U.S. Consumers Spending Stagnant On Higher Income

This morning, data for U.S. consumer income was reported as a 0.5% rise. The market was expecting just 0.3% and a half point gain is the biggest gain seen for more than half a year.

On the other hand, personal consumption rose just 0.1% and once you factor in higher prices real spending was unchanged. This marks a clear cutback in spending in favor of savings, or more likely in favor of paying down debt. Question also whether this is an indication whether those stimulus checks in May will get spent with local retailers versus allocated to pay down additional debt or further fund the savings account.

At 10:00 a.m. EST today, we will get the University of Michigan Sentiment Index numbers. The market expects an end-of-month value of 69.5, as compared to a prior reading of 70.8.

The pre-market activity suggested a mildly higher open.

With the weekend now here, we'll pick up with our educational video series on technical analysis basics.

In this edition of the Traders Whiteboard we will be introduced to the concept of establishing a trading game plan.

Far too often I hear from traders who tell me that they are in a trade, but are not sure what to do next. In a perfect trading world. this question would never be asked because everyone of us would have a pre-established trade plan in place before we open the trade.

The whole video is just 5 minutes long. So, grab a cup of coffee and click on the the video image above to start it playing.

I'll be posting additional lessons over the weekend...

Trade well.

Christopher Smith
TheOptionClub.com

Market Update, a FREE Copy of ETF Profit Driver, and Tonight's Webinar...

I've go a few things to cover today, so if you don't want to miss any of them be sure to check out the whole post.

Current Market Analysis

Interesting. Before the market opened this morning, the futures were trading higher and it looked like we were going to see some upside.

It's about an hour into the trading day as I type this and I've been watching the big cap indexes fluctuate between positive and negative. The RUT and NDX have pretty much remained in the red, and in the last several minutes I've watched all the broad based indexes get negative.

My analysis is unchanged from what I posted on the blog yesterday, so just check that out if you're curious.

A Free Copy of ETF Profit Driver?

I've seen Bill do this before. He's going to give away a free copy of his ETF Profit Driver course before they release it for sale. He even pays shipping and handling...

If you're interested, you just need to tell him why you should be the one he gives it to. You can do that here:

ETF Trading Course Contest Entry

I'd really like to see someone from TheOptionClub.com win the free copy, so take a couple minutes and throw your name in the hat!

Options Trading Service Webinar TONIGHT!

This is last minute and I do apologize, but I just learned about this last night...

A short while ago, Options University hosted a live webinar to profile some significant updates to their trading service. The presentation was plagued with some technical problems, so they're hosting a repeat of the presentation.

The presentation features Ron Ianieri, who will give you a "behind the scenes" look at what they do.

You may register here:

Webinar Registration

It is tonight at 9:00 p.m. EST, so you need to get signed up and

What's Coming Tomorrow...

With tomorrow being the end of the week, I'll be posting the next lesson in the Traders' White Board series.

This series is a free education course on the basics of technical analysis. I posted the first three lessons last Friday, Saturday and Sunday. I'll be doing the same this weekend.

Each lesson is a short video, focusing on one discreet topic. So, set aside ten minutes tomorrow, and over the weekend, to visit the blog and brush up on your T&A skills...

Oh! Don't forget. I'll be getting that ETF Profit Driver review up as well...

Trade well!

Christopher Smith
TheOptionClub.com

Why The S&P 500 May Be Heading For 1,170...

The markets cooled a bit yesterday, and this morning's pre-market activity has been pointing toward a soft opening. The question is whether the market is consolidating the recent gains before heading higher, or was this buying just a short-term recovery from over sold conditions and we're about to resume our downward trend.

To gain some perspective, I have two charts from the MarketClub service for us to review. They are both of the S&P 500, but one is a weekly chart while the other displays monthly bars.

I won't post the daily, but you can very easily pull that up yourself. We have a recent green trade triangle from the MarketClub service on that chart, as well as on the weekly chart (above). You could get long here, but you would want to maintain a tight stop.

What I want to point out on the weekly chart above is the red, down sloping trend line. We are still in a downward trend and have rallied off of a recent low. I might get more confident about calling a bottom if we test that low and see it hold.


This second chart is the monthly. You'll notice that our last major bottom was back in March '03, and that we enjoyed a significant rally off that bottom that carried us through December '07. That's a long run.

I have inserted Fibonacci retracement levels. You'll see that the first level has held, but we could very well see the market retrace to the 50% level at about 1,170 on the index. Notice that the monthly chart has not produced a green trade triangle and we are still operating under the red triangle generated back in January.

What does all of this mean?

It means that we've rallied off of recent lows, but we don't know if this rally will turn into a new bull market trend. We may very well return to the current bear market trend, or see the market consolidate. The point is we are at a point where we need to see what develops while being cognizant of the "big picture."

Calling a bottom right now and jumping in with all your capital is ill advised. If you want to get long, be judicious. A couple in-the-money call options may be a safer means of taking a long position than buying the underlying equity. You can always exercise your rights under the options to buy the stock or sell the appreciated calls to help finance that equity purchase. If this rally fails, you have less at risk.

More technical analysis lessons from the Traders' White Board series are coming as we get closer to the weekend, plus I hope to have my review of Bill Poulos' ETF Profit Trader posted.

So far, I'm impressed and believe that he has done another expertly fine job. Let's see if my opinion holds up as I finish working my way through. Take a look at yesterday's post if you would like to get some additional information.

Trade well!

Christopher Smith
TheOptionClub.com

Learning Technical Analysis - Traders' Whiteboard Series

The stock market is closed today in observance of Good Friday, but that doesn't mean that we can't work on improving our trading...

Starting today, I want to share a series of educational videos with you. Each video is part of the Traders' Whiteboard series, which covers some foundational aspects of technical analysis.


Even if you understand technical analysis fairly well, it never hurts to review the basics.

The markets are currently engaged in a consolidation, marked with a lot of volatility. No one can say, with any degree of certainty, where we are headed next.

These videos focus on identifying trends and patterns that can help you make sense out of what is going on and position yourself for future trends.

I'll follow up this weekend and post a couple more videos. There are several of them, so do check back.

Trade well!

Christopher Smith
TheOptionClub.com