OptionsVest

The stock market ended a strong year with a final hour tumble on low volume that will likely prove to be insignificant. You should be able to find continued success by trading bullish option strategies on pullbacks to support level. Look for the market to hold up at 1,100 on the SP 500, 10,250 on the DJIA, and 2,200 on the Nasdaq Composite.

JD

The 50 day MA held as support once again this week, but it did so on lower volume. The market has spent the last month going no where.  Often times this indicates that the market is digesting its gains before making another big move. The biggest problem I see though, is that its not really telling us which direction it wants to go.

A quiet market is a good time to try an option trade that benefits from time decay.  An Iron Condor or a Butterfly would fit the bill, but you may not get enough premium to make it worth while.

It looks like a lot of traders have already gone home for the holidays. It may be a good time to join them and take a break from trading the financial markets. That way we can all be fresh at the start of the New Year.

JD

The news on Friday was good. Unemployment had dropped from 10.2% to 10%.  The market gapped open considerably higher. And then a funny thing happened on the way to the bank: the market sold off into the close on very strong volume.

What’s that all about you might ask? Once the euphoria died down, investors realized that a few more good reports and the FED might just begin increasing interest rates. The dollar jumped, while Gold and Oil tanked. That’s not good news for stocks or bonds.

It will be interesting to see if the 50 day MA supports the market this time, or if the prospects for an L-shaped recovery hold the market down. While active traders might want to put on a bearish trade or two, longer term traders and investors should consider taking some profits on current long positions. If this is another pull back, you can always get back in. If the market decides it is time to head south for the winter, there will be plenty of time to profit on the downside.

JD

While most of us in the United States were eating turkey and watching football over the Thanksgiving holiday, there was a little credit crisis going on overseas in Dubai. While that rocked financial markets around the world for a couple of days, stocks bounced back some on Monday.

Once again bad news is not really slowing down the stock market’s bull run. Investors are still using every pullback as an opportunity to add to their long positions. Savvy traders are using options to take advantage of this situation by structuring trades that reduce their risk in case this little credit crisis turns into another big event. You might want to take this approach yourself, by considering a Bull Call Spread or a Bull Call Diagonal Spread.

JD

The stock market started the week by hitting a new 52 week high, but has been essentially running in place ever since.  This rebound off of the support levels it reached at the end of October continues a pattern of bouncing between its upper and lower Bollinger Bands for the past six months. It would not surprise me if this pattern continued for at least another couple of months.

It makes sense to take some profits on your bullish positions going into the November expiration and the Thanksgiving holiday. In fact, you might even consider taking next week off and giving thanks for a much better year for the stock market than anyone would have imagined a year ago.  With the market in position to drift back down towards its lower Bollinger Band, you are likely to be in a better position to continue with some bullish trades when you get back to trading on the first of December.

JD