That’s what they say. Then go away – presumably for the the summer. But, if you look at the last 10 years of the Dow, you would see that this advice was only good about 50% of the time. I think I can flip a coin and call heads each time and be right ‘about’ 50% of the time, don’t you think?
But this May may have more reasons than just the flip of a coin. If you look at the S&P 500 chart below, you will see 3 pretty obvious signs that we may have a pullback soon – or maybe not.
- We are currently bumping up against some pretty significant resistance in an area between 1,215 and 1,228. The 1,215 number comes from a Fibonacci extension of 161.8% of the 106 point pullback this year in January and February.
- The 1,228 number comes from a 61.8% retracement of the big bear run of 2008/09 – where the S&P went from 1,576 to 666 (don’t like that number) over a period of 18 months.
- My 3rd reason: the VIX has had 2 higher highs and two higher lows. That is an indication of a trend reversal, and the up moves are much stronger than the down moves.
There are 3 possibilities: consolidation, a pullback, or a pause before heading higher. I don’t have the answer and I am not betting on anything other than the market will move on Monday. But, if I was to have a bias, I would vote in favor of a move down over the next few weeks. It may continue Monday, or we may have a couple of days moving back and forth and a retest of resistance, but I think we are headed for a pullback.
How far? Nobody knows. I know, you want me to go out on a limb. Alright, I say a pullback to 1150 – and if it breaks through that… may the shorts be with us.
Keep alert and be ready if you are positive delta like I am. We may need to go more neutral or negative in the near future.
April Results
As I mentioned in my last post, this month was phenomenal – mainly because of the chance I took on BIDU. I have taken similar risks and paid dearly for it, so it’s about time that one works out for me. Check out the Closed 2010 for the detail and charts.
Regarding the conservative account: if you have ever traded an account with Covered Calls, you know that account balances don’t seem to make sense. The reason is the short Calls and how they count negatively towards the balance. Right now, all the stocks are well above their Cost Basis, but the account balance keeps dropping. Of course, having TZA (inverse ETF) doesn’t help either – at least not yet.
In summary then, I know how much cash I’ve gained on that account ($3,933 in credit, or about 10%) and I’m not worried about the balance at this time.
◄ Jeff ►
