Good morning Traders,
 
For this weeks update, we’ll leave you in the extremely capable hands of our option strategist, Gregory Clay.  Gregory’s service continues to hit it out of the park.  If you’re not trading options for income, you should be.  You can try either of his services for only $1.  I suggest starting with the WICS – Weekly Income Credit Spreads.  In addition to his weekly income credit spreads, you’ll also get the weekly article below which Gregory uses to set up the market. 
 
 
 
January Barometer Sent Strong Negative Signal
2/1/2015 5:44:31 AM
 
Market Summary
 
Stock market action so far this year has been weak and mostly negative. This action has been fueled by plummeting oil prices, weakness overseas, confusion about the Fed’s next move and it’s bellowing about low inflation. Santa’s absence and a down January are bad omens, but they do not guarantee unmitigated market catastrophe. Lower oil and energy prices, while a drain on energy companies and the people they employ, it adds a lot of money back in the pockets of consumers to put into the economy and the stock market. Also, European quantitative easing funds are likely to find their way into the U.S. stock market where prospective returns are greater. 
 
The U.S. stock market ended a rough month this past Friday, delivering its third loss in five days and extending its declines for the year. The S&P 500 index dropped 3% in January, its worse monthly performance in a year. While the U.S. economy continued showing signs of strength, energy companies suffered from a sharp drop in oil prices and some big multinational companies saw their earnings dinged by a stronger dollar. Investors also sifted through the latest batch of corporate earnings news, and the results were mixed.
 
As we said recently “…Gold Mining stocks are blasting off to start the year and Treasury Bonds continue to move higher as they have since the beginning of last year. Equity indexes are barely breaking even and how they end up at the end of January is considered a “barometer” of how they will end the year…”
 
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A tool to help confirm the overall market trend is the Bullish Percent Index (BPI). The Bullish Index is a popular market “breadth” indicator used to gauge the internal strength/weakness of the market. It is the number of stocks in an index (or sector) that have point & figure buy signals relative to the total number of stocks that comprise the index (or sector). So essentially it is the percentage of stocks that have buy signals. Like many of the market internal indicators, it is used both to confirm a move in the market and as a non-confirmation and therefore divergence indication. If the market is strong and moving up, the BPI should also be moving higher as more and more stocks are purchased.
 
Last week we stated “…the S&P 500 BPI is breaking above its downtrend line and starting a new uptrend. The market needs to finish the month on a high note to confirm a bullish breakout…” the current chart shows the breakout failed and converted into a tight trading range. The question is whether a break out of the trading-range will be to the upside or downside.
 
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The updated chart below confirms our recent analysis is still valid “…As circled in the updated chart below the dollar, treasuries and gold remain converged at high levels. Investors are expressing doubts about the global economy and are being cautious about overindulging in the stock market. This cautiousness is leading investors to park additional funds into commodity assets…”
 
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Market Outlook
As reported by the Stock Barometer, in pre-election years, February’s performance generally improves with average returns all turning positive. NASDAQ performs best, gaining an average 2.4% in pre-election-year Februarys since 1971. Russell 2000 is second best, averaging gains of 2.1% since 1979. DJIA, S&P 500 and Russell 1000, the large-cap indices, tend to lag with average advances of around 1.0%. However, February does not have a solid track record when full-month January was negative. Going back to 1950, DJIA has declined 23 times in January, S&P 500 25 times and NASDAQ (since 1971) 15 times. Regardless of index, the following February was down more often than up and the average performance was solidly negative. 
 
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We recently commented “…Next week’s performance is considered critical as a prognosticator of the market’s expected 2015 performance. According to the Stock Trader’s Almanac January has quite a legendary reputation on Wall Street as an influx of cash from yearend bonuses and annual allocations typically propels stocks higher…January Barometer simply states that as the S&P goes in January so goes the year…The long-term record has been stupendous, an 89.1% accuracy…The market’s position on January 31 will give us a good read on the year to come…No other month can match January’s predictive prowess…”According to the Stock Barometer the January Barometer indicator is negative again for the second year in a row and 5 of the last 8 years. Since the start of the secular bear market in 2000 January has been down 7 of the last 15 years with an average loss of 1.2% on the S&P and Dow and a fractional gain of 0.1% for NASDAQ. All of the major errors have occurred in secular bears, so if we still are in a secular bear market, which we contend we are; perhaps we can find some solace in this fact. We are continually reevaluating the efficacy of the January Barometer as we do with all indicators, market cycles and seasonal patterns. But it is way too early to relegate the January Barometer to the indicator graveyard. Its 754 batting average is solid. Also of note, this is the first time since 1950 our January Indicator Trifecta has registered a down Santa Claus Rally, an up First Five Days and a down January Barometer.
Last week we said, “…Commodities continue to be the top performers in the first-quarter. Fourth-quarter revenue and earnings results have not impressed investors, which are suppressing the equity indexes…”
  
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A standard chart that we use to help confirm the overall market trend is the Momentum Factor ETF (MTUM) chart. Momentum Factor ETF is an investment that seeks to track the investment results of an index composed of U.S. large- and mid-capitalization stocks exhibiting relatively higher price momentum. This type of momentum fund is considered a reliable proxy for the general stock market trend. We prefer to use the Heikin-Ashi format to display the Momentum Factor ETF. Heikin-Ashi candlestick charts are designed to filter out volatility in an effort to better capture the true trend.
 
Last week’s Momentum Factor ETF (MTUM) chart analysis said, “…The current trend is pointing towards stock indexes moving back toward recent highs…” As noted in the updated chart below, recent upward momentum converted into a new downtrend. The most probable near-term outcome is range-bound trading with triple-digit market fluctuations.
 
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Volatility is back and may be here to stay. Expect more of it moving forward this year and beyond. As seen in the graph below, the Volatility Index (VIX) and S&P 500 Index crossed last week. The VIX ended higher as the S&P 500 had a down week. Energy companies start reporting fourth-quarter revenue and earnings numbers next week. If they disappoint it is reasonable to expect the VIX to continue higher.
 
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Our previous Total Put/Call Ratio analysis said, “…investors are worried about a market pullback and loaded up on put option contracts. The current ratio is excessively bearish and reflects money managers protecting their long positions in the event traders respond negatively to fourth-quarter earnings and revenue numbers…” Investors remain bearish and are buying more puts than calls in response to higher volatility.
 
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We have been pointing out how the American Association of Individual Investor Survey (AAII) survey continues to prove its worth as a contrarian indicator. Last week we stated, “…as retail investors drastically reduced their future bullish outlook the stock market jumped higher…” This past week you can see that as individual investors’ bullishness surged the stock market responded with a losing week.
 
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The National Association of Active Investment Managers (NAAIM) Exposure Index represents the average exposure to US Equity markets reported by association members. The green line shows the close of the S&P 500 Total Return Index on the survey date. The purple line depicts a two-week moving average of the NAAIM managers’ responses. As the name indicates, the NAAIM Exposure Index provides insight into the actual adjustments active risk managers have made to client accounts over the past two weeks. Fourth-quarter NAAIM exposure index averaged 67.77%. Last week the NAAIM exposure index was 76.23%, and the current week’s exposure is 92.62%. Last week money managers drastically increased their equity exposure on stocks that are exploding during fourth-quarter earning season.
 
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Trading Strategy
The equity market is suffering under the weight of concerns about global economic growth and mediocre fourth-quarter earnings reports. The graph below is the 30-day return for the main 10 S&P equity sectors. You can see virtually all the groups are down for the month with only Healthcare and Utility sectors barely above water.
 
Our index indicators are giving bearish readings, which is more in line with the general market trend than the occasional bullish readings such as we saw last week. The Dow has fallen into a bearish “lower highs, lower lows” chart pattern. Our internal indicators have also fallen back into more bearish modes, so options traders should continue to add bearish positions. Against the current whipsaw action, it is best to take smaller positions than you normally do, but don’t sit out completely.
 
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Feel free to contact me with questions,
 
Gregory Clay
Option Strategist
 
 
——————————–
 
 
Gregory just entered a trade in Netflix – subscribe now so you don’t miss his next trade!
 
Regards,
 
Carl Adams, Publisher
 

Visit www.stockbarometer.com to try our service for only $1.

 

Market Summary

The current version of Easy Money Options
Income (EMOI) articles began publishing in April 2014 and herein is the past six
months’ trade results. As presented below, we executed a total of 22 trades,
with 21 of these closing with a gain. Displayed
below are the details for each trade. The Opening Trade date is when the ‘Trade
Alert’ was published for the trade. Each trade was closed out on the date
associated with the Closing Trade. The gain or (loss) for each spread is shown
along with a Summary Total (year-to-date accumulated result of all the trades).
The trades do
not
include commissions and fees. Also, results will
vary based on the number of contracts traded, and at what price the orders are
filled
.

 

 

 

 

 

 

  

Note

As a side note, increased market volatility over past
month has made it more difficult to execute opening trades at recommended limit
prices. Suggested limit prices for each option contract are the published quotes
at the time an article is written. Generally, in the past, trade suggestions
were posted in the evening for execution the following day. And with record low
volatility it was usually easy to get into trades the next day. Now with daily
triple-digit market moves and higher volatility, it may take a couple of days to
execute the trade at an acceptable price.. Keep in mind that in the ‘Trade
Setup’ for Trade Alerts we suggest a minimum credit amount that we would accept.
So that generally, even if the recommended prices are not available, we would
accept the suggested minimum to do the trade.

 

Regards,

 

Gregory Clay

Options Strategist

Info@StockBarometer.com

Gregory Clay’s Option Newsletter – High Value Option
Trader

Gregory Clay’s Option Newsletter – Weekly Income Credit
Spreads

 

September is holding true to form…

Visit www.stockbarometer.com to subscribe.

 

Market Summary

The prospect of rising interest rates sent the stock
market to its first weekly loss since early August. Contributing to investors’
skepticism was a report showing retail sales in August rose more than economists
had forecast. That reinforced expectations that the Federal Reserve could start
hiking interest rates sooner than expected. All the major equity indexes are in
positive territory for the year. Most analysts expect these gains to hold up
into year end, even there might be a pause or slight pullback along the
way.

 

 

 

Market Outlook

According to the Stock Trader Almanac Monday of September
options expiration week is bullish for DJIA and S&P 500 although major
shellacking’s in 2001 and 2008 pull the day’s average gain since 1982 negative.
NASDAQ’s record is much weaker on Monday, declining 20 times in 32 years. Moving
forward to September option expiration day, it is generally bullish and has
improved recently with DJIA up eight of the past ten years with an average gain
of 0.5%. S&P 500 and NASDAQ have nearly identical recent track records.
Full-week performance has a somewhat spotty record over the last ten years for
DJIA, up six and down four. However, S&P 500 and NASDAQ have fared better,
both have gained in nine of the past eleven years. 

 

We feel compelled to regurgitate analysis
from the past few weeks because it is playing out as advertised “…It has been reported that since 1950,
September is the worst performing month of the year for the major stock indexes,
a majority of analysts feel the August lows will maintain as support for the
remainder of the year…Don’t be surprised if September starts strong as it has in
thirteen of the last nineteen years. But the market begins to fade as money
managers’ start selling off losers and repositioning assets for the end of the
third quarter window dressing…”
As we said, September
started strong with the major indexes reaching record highs, but they started
selling off finishing with a weekly loss for the first time in over a month.
Recent market highs were generated primarily on the strength high flying
biotechnology shares. As displayed in the updated quarter-to-date chart below,
other than technology and maybe financials, other market sectors are starting to
struggle. It is reasonable to expect market weakness heading into upcoming
earnings season. Notice declines were led by utility companies and other stocks
that pay high dividends. Those stocks have been in favor this year as investors
hunt for other sources of income because bond yields have been
low.

 

 

 

We also said “…We expect volatility to increase over the
next two months from the current historical lows including another price
pullback…”
In the 2-hour Volatility Index (VIX) chart
below you can see the index started trending higher in September with higher
highs and higher lows. Look for this trend to continue over the next week or
two.

 

 

 

Recently we commented “… the chart is signaling a pause might be
imminent as the price is at an overbought level where it usually pulls back.
Also noted is upward momentum is slowing down which supports the contention the
trend might be starting to change… stock prices appear to be
consolidating…Expect stock prices to stall and maybe even pullback later in the
month…”
The updated chart confirms our previous analysis
as a range-bound trend is now confirmed with the down days starting to show the
strongest momentum. Price consolidation should continue over the next few
weeks.

 

 

 

 

Previous analysis stated “… after spending the month of August moving
up in tandem with equities, treasuries have been selling off in September in
response to a potential rise in rates…”
Supporting the
fall in treasuries is the yield on the 10-year Treasury note has now climbed for
seven straight days with the yield on the 10-year Treasury note rising from 2.34
percent at the start of the month and is trading at its highest level since
early July. Below is chart that compares the U.S. dollar to treasuries and gold.
As evidenced in the chart, the dollar has risen to its recent highs and this has
contributed to slumping commodity prices such as energy, treasuries and precious
metals. Bearish commodity trades are working out well, but it is wise to avoid
long positions in these assets until the trend changes.

 

 

 

As seen in the chart below, the S&P 500 index
continues in a long term uptrend while the CBOE Volatility Index (VIX) remains
contained near record lows.

 

 

 

The American Association of Individual
Investor Survey (AAII) survey bullish sentiment number dropped from a nine month
high established a few weeks ago. As we reported last week “…the market is due for a pause. The
relatively low bearish number confirms there are limited ‘sellers’ to sustain a
correction at this point…”
The current AAII results are
close to historical norms, this falls in line with our analysis indicating the
overall market is in a ‘lull’ heading to earning season.

 

 

 

 

Second-quarter National Association of Active Investment
Managers (NAAIM) exposure index averaged 81.64%, last week is was 82.49%, and
the current week’s exposure is 63.63%. Notice in the chart displayed below, the
exposure index had been trending higher over past month but it crashed this
week. Money managers pulled funds out of the market this past week by selling
off shares. The next question is how long will money managers remain on the
sidelines?

 

 

 

 

 

Trading Strategy

Weekly Income Credit Spreads

Easy Money Options Income

The Stock Traders’ Almanac says that historically
speaking September weakness has been a great time to load up on stocks ahead of
the “Best Six Months” of the year, November to April and an even better time in
midterm years ahead of the best two consecutive quarter span of the
four-year-presidential-election cycle. The market’s sweet spot of the
Four-Year Cycle begins in the fourth quarter of the midterm year. The best
two-quarter span runs from the fourth quarter of the midterm year through the
first quarter of the pre-election year, averaging 15.3% for the Dow, 16.0% for
the S&P 500 and an amazing 23.3% for NASDAQ. Pre-election Q2 is smoking too,
the third best quarter of the cycle, creating a three quarter sweet spot from
midterm Q4 to pre-election Q2. Appling these average gains to yesterday’s
closing prices puts DJIA at 19675, S&P 500 at 2315 and NASDAQ at 5656 at the
end of Q1 next year. But, considering the markets recent run and the specter of
rising interest rates, a mid- to high-single-digit advance is probably more
likely between now and the second quarter of 2015. A recent graphic is
worth repeating

 

 

 

In the updated chart below you can see the technology and
healthcare S&P sectors have been holding up the equity market over the past
90 days. Most of the other sectors are either negative or barely positive over
this time period. When the market begins its next bullish leg higher expect
healthcare and technology sectors to lead.

 

 

 

Regards,

 

Gregory Clay

Option Strategist

Info@StockBarometer.com

www.stockbarometer.com

 

 

 

Trade Alert
4/24/2014 9:52:20 PM
Print View

Gregory Clay’s Option Newsletter – Weekly Income Credit Spreads

Gregory Clay’s Option Newsletter – Easy Money Options Income

High Value Option Trader Setup — ————————————————————–

The High Value Option Trader sets up a Gold bullion exchange traded fund (ETF) (NYSEArca:GLD) 15-day long call option strategy. The suggestion is to submit a limit order to purchase the option strike price below. Please confirm the correct option symbols with your broker.

Buy 10 GLD May 9th expiration 124 strike call contracts for approx. $1.78 (yesterday’s closing bid/ask mean) 

After opening the trade, set up a .38 trailing stop order on all the contracts

Our target price to exit trade is $128 – an approx. 100% profit

10 contracts traded on each leg (number of contracts can be increased or decreased based on risk tolerance and/or funds available to trade.)

Why we recommend it:

The Gold ETF (NYSEArca:GLD) is a popular proxy to trade gold as it seeks to replicate the performance, net of expenses, of the price of gold bullion. The trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets. The gold held by the trust will only be sold on an as-needed basis to pay trust expenses, in the event the trust terminates and liquidates its assets, or as otherwise required by law or regulation.

You can see in the chart below how the GLD ETF price bounced high off of its support line today. Also note how the Relative Strength Indicator (RSI) was oversold and is turning up. As highlighted in the chart, a basic tenet of technical analysis is when a resistance level is broken; it usually converts to the new support level. Old resistance was penetrated in the middle of February and that level has maintained as firm support ever since. Also, today’s GLD price action is considered a bullish signal that it should move higher. Market pundits are saying that investors are starting to embrace gold as a hedge against stock market uncertainty and geopolitical risk related to the Ukraine-Russia showdown. At this point we are betting that buying GLD calls is a low-risk high-reward opportunity with a high probability of success by over the next few weeks.

 

Exit Plan

Near term resistance for GLD Corp. stock is our $128 target price where we will look to close out this trade (sell the call contracts).  Also, as suggested above, we will apply a $.38 stop order immediately after the order to open the trade is executed. The stop order is an order placed with your broker to sell the call options when the price drops 38 cents. This type of order takes the emotion and uncertainty out of trading decisions and limits the potential loss while allowing gains to accumulate. A stop order will automatically adjust itself as the option price moves higher but will execute automatically when the price drops the specified amount – this removes the need to constantly monitor the position.

Regards,

Gregory Clay

Options Strategist

Gregory Clay’s Option Newsletter – Weekly Income Credit Spreads

Gregory Clay’s Option Newsletter – Easy Money Options Income