A Few Updates

A week or so ago, I had mentioned in a post that I bought a put option on UPS. The stop level that I had suggested has been surpassed. With that said, I am still in the trade. I only devoted a portion of my account to the trade, that I could stand to lose 100% and still be OK. I do not typically let a trade lose 100%, but there is always that risk. I am not convinced that the market will stay strong enough for this stock to hold up, but this coming week will more clearly answer that question for me.

Also, for anyone who followed the last post about the gold stocks showing reversal candle patterns, that proved true today. I mentioned that I traded AEM but did not specify the trade. I had Sept. 45 calls. I made a good profit and exited today, though in retrospect holding till close would have netted a much bigger profit. The bottom chart at top shows AEM. Today the stock gapped up strong, which I had mentioned in the last post is what I prefer to see after a reversal candle. When you see that in the pre-market for this specific pattern, it often pays to buy at the open, even if you are not in the trade already. I targeted the fill of the recent gap down as my exit, and that is basically where I got out today.

Now on to what's ahead.........................

I wanted to offer a perspective on the market, though only time will tell if it has merit. The sentiment right now is ripe for a reversal on some grounds. However, some of the tried and true data I follow suggest that there is at least potential for the market to fall substantially. The equity and/or total put/call ratio is one such piece of data. My perspective is this........

Look at the bottom that formed in March relative to January in the DIA chart above. Now look at the potential bottom right now. They look very similar to me. Looks like another classic retest of a significant low is occuring, and we should go higher from here........

However, the similarity is so striking that I can't help but feel that this market is going to fake us out. Everyone is hoping for and many expect a market rally. The market as a rule will alternate patterns of correction, and my feeling is that this retest will fail.

Then if the lows are substantially exceeded, I think that will set up some real extreme sentiment and give a more clear bottom. I think that would get the put/call ratio to rachet up again......a symptom we have not seen despite a pretty sick market since late May.

Pete