OptionsVest

So much for the good start to 2010. That has already been swept under the carpet. The SP 500 had its worst day since the end of October, taking it back right to the point where it closed 2009. There are many reason for this pull back, including higher interest rates in China, a rising dollar, a Republican Senator in Massachusetts, more regulations on financial institutions, and a tired market after an amazing bounce, just to name a few.

The SP 500 has once again pulled right back to its 50 day MA, while the DJIA has fallen though slightly, and the Nasdaq is rapidly heading in that direction. Ever since the market took off from its bottom last March, it has pretty much held that support level. This time though, the news does not look as good as it has been recently. That being said, this could easily be the pull back I have been looking for as an opportunity get better pricing on some bullish strategies.

The market looks to be in transition, so do not be in a hurry to jump back in. There is always the possibility that we will experience a full fledged correction. If that’s the case, you can always place some option trades to take advantage of the ride down.  We could have an interesting conclusion to the week.

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