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I believe we’re in a stimuli supported bull market. I don’t believe the naysayers that have stated the last 7 months, that we’re headed towards a double dip rhetoric. I don’t see that in hind site. Though, we’ll experience several minor recessions in this decade, possibly the next one in 2012. Markets and world economies are badly bruised with the economic slowdown. To press matters worse, sovereign debt has been the jingle for several years. From Zimbabwe to Argentina, fiscal irresponsibility has been felt by all in the free world market.

Many of us have 401k’s, Roth IRAs, annuities, and long term investments. In a perfect world we all love to see markets to reach for the skies. From the 90′s until 2000 we experienced just that. There were teachers, postal workers, to garbage men that believed they were all guru’s of the market. You couldn’t have gone wrong selecting a stock off the boards. Those were the good old times. Wake up!!! It’s 2010. The truth of the matter, as investors, we have to take fiscal responsibility of managing our finances and not forget the basics. Whether it be business, personal wealth, or stock trading, we must protect ourselves from these hiccups.

I have a prime opportunity for wealth, while markets correct themselves. The rule of the game is to follow the trend up or down and profit!!

We’ve gone through our second mediocre stage of a correction, with the first being from June 11th 2009 to July 13th of -9.2% and the second being January 20, 2010 – Feb 5 of -9%. Notice the trend? I’m not referencing that the current leg we’ll experience a similar correction. We’ve been trending up on the current leg since Feb 5th. The market needs a breather as it exhausted it’s rocket fuel. I’m noticing a similar trend to pretty much all the equities in addition to the indices.

Let’s use QQQQ which follows the DJIA and SPY which follows the S&P. I’ve attached (3/19/10) 1 year chart of the DJIA. Notice the two dips. When price drops below the 50 day moving average is when one must act aggressively and purchase in the Money or near the money Puts  to protect downtrend of your long term investments or day-trading opportunity. During this cycle, the QQQQ and SPY puts can garnish gains anywhere from 75% to 300%. This strategy is coined “Straddle” (if you own stock interest or call contracts)

In this particular example, it’s customary for a market to create a new support level since the current leg is exhausted. It’s rather healthy for a bull market to follow this trend. It normally lasts 5-10 days. I don’t believe we’ll experience a -9% correction similar to the previous two downturns. We’ll see a modest 2-4% correction. This may equate to a 75% to 150% gain on in the money put. SPY April $116 and $117 puts currently trade @ $1.50 and $2.00 respectively.

Another thing one must note which may signal a developing correction is the 50 day moving average. If that begins to cross over the 100 day, that may essentially signal an indecisive market developing. Time will tell, in any event take advantage of this opportunity to profit!!!  Cheers

Tags: 100 day, 50 day, calls, corrections, moving averages, options, puts, qqqq, spy, straddle

This entry was posted on Friday, March 19th, 2010 at 8:12 am and is filed under Contributors, Technical Stocks. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.