Weekend Update: May 5th

Both our trend model and pattern recognition approaches to the market remain in agreement that the dominant trend of the market is down. It would be nice if it were a straight line down, but when it comes to trading (and investing) that is a pipe-dream. Markets trend in zig-zags, larger dominant trends in one direction, smaller counter-trends against it. In the midst of, and especially near the end of one of those counter-trends, exasperation tends to set in. 

This is the hand that we have been dealt since the early February spike lows. It is essentially sideways, the nemesis of trend following as well as leveraged option trading. Since we use options to trade trends, it is a double whammy against our trading. IT WILL RIGHT ITSELF IN THE NEXT LEG DOWN.  


All Of The Above In One Chart


The DJIA is still 1,000 pts below its trend-reversal line, so the current downtrend is far from over. We will continue to use a break of the 200 day moving average to signal the beginning of a new leg down (note that the Dow was down 100 points in the last hour of trading on Friday.) 


The parameters for getting aggressively SHORT did not kick in this past week, but they are still operative for next week. The 200 day moving average closed the week at 23,764 which is now the first threshold to start adding back SHORT positions. The final support level is still 23,334 and a Dow a close below this level will trigger the second round of aggressive selling. Review the May 1st update for details and more specific instructions. Opportunity is ahead and the market is doing what it must to start the next leg down with as few of us on board as possible. 


AAPL: Reversed Long on Friday. We are buying the Aug $185 Call, which closed Friday at $7.80. AAPL was up last week close to $25 above its April 27th low. A similar move before August = $210 which will price those calls at $25. (AAPL triggered Long in the Short-Term portfolio last week and its Jun $175 calls are already up 100% in two days.) If our Dow trend model is wrong about the intermediate term trend being down, these new August calls could easily quadruple in the next 3-4 months.

SOXX: Reversed Long on Friday.  This was a Special Situation Portfolio pick but its too risky to buy calls and price is on the wrong side of its trend-signal line to buy puts. Stay out. In the event that next week the market does not go down I will be adding 1-2 promising new Longs to this portfolio.