Stock Market Analysis

Wednesday, February 11, 2015

Is The Market Ready For a Breakout?

Is the market ready for the breakout?

This is probably one of the biggest questions traders are asking as the market enters the third month of its sideways volatile behavior. One thing is for sure about such volatile channel behavior; that it breaks out strongly one direction or the other eventually and that trending behavior lasts much longer than sideways ones. This is what makes Neutral Options Strategies so tricky to implement in options trading.

Even though I hold the outlook that we should see a significant correction this year, the way the market has behaved over the past two trading days suggest that this may not be the start of that correction. In fact, more than any time over the past 3 months, the market looks cocked for an upside breakout. Like I always said, as a trader, there is no place for soothsaying... predictions and outlooks are merely entertainment, it is the actual price action that we believe in and trade in.

The price action, particularly the generally market leading Nasdaq100, over the past two days has strongly suggested an upside breakout due mainly to how the market has held up against continuing downwards following the evening star candlestick formation on 9 Feb 2015. That formation was the perfect formation for the market to continue downwards, continuing the sideways volatile channel and very probably leading into a downside breakout. However, the market resisted that formation and turned upwards instead on good volume. It has also remained up there yesterday and even continued upwards with the Nasdaq100. This is a significant change of character that strongly suggests that we should start preparing for upside opportunities and that is exactly what I am going to do for my Master's Stock Options Picks subscribers. Yes, the wait could be over at last!

Thursday, February 05, 2015

"How January Ends, So Will The Year"

"How January Ends, So Will The Year"

Does anyone still remember this age old trading adage?

January 2015 ended badly... SP-500 ended about 2000 from 2050, the Dow ended about 17,160 from 17,820. Whatever happened to Santa Claus rally? Will 2015 end badly just like how the old adage goes? Well, January 2014 ended really badly and everyone was shouting crisis but 2014 still ended strongly, marking a 9th bullish year since 2009, the strongest bull run since before the tech bubble in 2000! So did January of 2010. So, does this mean that the adage is no longer true?

Well, I would be cautious in completely writing the adage off this year. Even though I do not see a market crash coming as bond yields are still way off market crash levels (but its already the 9th year people... stock market cycle anyone?), I do see that the market is overdue a significant correction the magnitude of what we saw back in 2011in order to digest some of these overbought sentiment. Indeed, the market has been going sideways in a volatile bearish inclined channel since December 2014. The bulls and the bears are still fighting strongly against each other, finding plenty of reasons for either side of the trade.

What do prudent directional traders do during this time?


Indeed, with the market going either way, this is certainly not the time for high probability directional trading. This is also why my Master's Stock Options Picks service has been largely on the sidelines since December 2014. This is definitely the time to be patient, wait for a resolution of direction before trading strongly into that direction.