Congratulations to Option Empire subscribers!!

Our RUT 860/870 “Bear Call” credit spread expired this morning resulting in a profitable trade for the month of May 2012!  All auto-trade subscribers recognized a 2.88% PROFIT for the monthly option cycle ending May 18, 2012!

As of today, Option Empire YTD gains stand at 11.62%.  By contrast, most of the major averages have lost nearly ALL of their YTD gains and are dangerously close to slipping into NEGATIVE territory.

Market Close –> Thursday, May 17, 2012

Ouch!!  We now have our answer – support levels did NOT hold!  Equity markets experienced accelerated selling pressure today….closing at the lows of the day.  While signs of near-term support were starting to develop early this week, investors are simply unwilling to venture into stocks in the face of mounting economic and geopolitical risks!

Regardless, the RISKS within the global equity markets are SIGNIFICANT.  We cautioned investors weeks ago on the risks of owing stocks at this time – “The probability of “significant risk” has been increasing as of late and we again caution investors who are “long” stocks.  With markets at critical levels, the “risk factor” has certainly been elevated and investors should take extreme caution at this time.” 

As we also mentioned, complacency is NOT an investor’s friend.  Markets can and do experience violent moves very quickly (particularly DOWN) and do NOT wait for investors to react.  Since the beginning of May 2012, the S&P 500 has lost over 8%!! 

The RUT closed today at 754.33.  Our 860/870 “Bear Call” credit spread expires tomorrow with ANOTHER PROFIT!!

Market Close –> Monday, May 14, 2012

As investors continue to purge stocks, most of the major averages are approaching critical technical levels.  Recent trading action within the U.S. equity markets has unfolded just as we had anticipated.  At this point, the big question is whether or not key support levels will “hold”…or U.S. equity markets are setting up for another leg down.  With today’s close, the S&P 500 has lost half of its gains for 2012; the Russell 2000 has lost over half of its 2012 gains.

At this point, our confidence in support levels “holding” has deteriorated as global fiscal and economic conditions unfold.  Price action continues to exhibit very bearish patterns and trading activity.  With more fears arising out of Greece (and Spain…and Italy….and the rest of the Euro Zone), stock markets across the globe went into overdrive selling yet again today.  U.S. equity market opened significantly lower, made a half hearted attempt to rally off the intraday lows….but ultimately met increased selling pressure the last hour of trading …again.

As before, we anticipate these key support levels to hold BUT….that does NOT mean we are short-term or near-term “bullish”.  As we state last week, we continue to look for increased market volatility and fairly narrow trading bands over the coming days/weeks.  This outlook is of course contingent upon avoiding any major sovereign debt “blowups” and geopolitical upheavals (a very real risk at this time).

In fact, the probability of “significant risk” has been increasing as of late and we again caution investors who are “long” stocks.  With markets at critical levels, the “risk factor” has certainly been elevated and investors should take extreme caution at this time. 

With fiscal, economic and political options running out in regards to the Euro zone, the Euro and sovereign debt issues, the situation could unravel quickly and profoundly.  As we cautioned late in 2012, the economic conditions were not improving to the degree which could justify “stock market levels” and 2012 could like be another disappointing and RISKY year for stock market investors!

At that time, Treasury bond yields were “forecasting” trouble ahead.  While the bond market was sensing something very serious on the horizon for 2012, stock investors were still seemingly “complacent” and still optimistic during the 1^st quarter of 2012.   As we always say (and why we monitor the bond markets so closely) –  “statistically” the bond market has a MUCH better track record than the equity markets for anticipating “things to come”.  With rates now plummeting to new lows, we certainly are not seeing any signs of “clear sailing ahead” for stocks!

As many of our subscribers know, we have been “bearish” on the U.S. economic fundamentals for quite some time.  However, investors should NOT let longer-term outlooks, analysis and opinions dictate their short-term trading decisions.  Again, we are concerned only with conservative, high probability, short-term trades based on the what the market is telling us at that specific time (market technicals), and NOT investing capital for the long-term based on what should or could potentially transpire in the months and years ahead.  In our opinion, the LATTER is extremely RISKY!

Regardless of the long-term market performance, we continue to subscribe to our basis investment philosophy – investors should have long-term objectives but manage their capital and risk on a short-term basis.  With our short-term credit spread strategy, however, we do not have to make this prediction, nor put our capital at risk placing a bet on such a long-term prediction.   We are only concerned about “short-term” market activity (in our case, typically 21 – 31 days)!  We are perfectly content with our 3% – 5% average monthly profit, without being at the mercy of the equity markets going higher and regardless of the market performance!

At this point, our spread position is in great shape going into option expiration on Friday.  We are monitoring the markets closely in preparation for the June 2012 option cycle which begins next Monday.

The RUT closed today at 778.99.  Our 860/870 “Bear Call” credit spread has less than one week to go before option expiration and our trade still looks to be in great shape at this time.

Market Close –> Wednesday, May 9, 2012

Are you enjoying the ride yet??  Gone are the days of methodically grinding higher and higher on the back of quantitative easing!  As we always say, markets can become overbought and oversold for extended periods of time, BUT, eventually reality sets in markets will revert back to the means.

After more concern and uncertainly over Europe, U.S. equity markets gaped much lower again today in morning trading.  Equity markets across the pond took it on the chin today and incurred big losses.

While stocks tried to rally in early afternoon trading, selling pressure forced stocks lower once again by the end of trading (although well off their intraday lows).  Breadth continues to be overwhelmingly negative and demand/supply levels are still in question.  Most of our leading technical indicators are still decisively “bearish” with continued downside bias/risk.

Near-term support levels are still holding across most of the major averages.  With markets at critical levels, the “risk factor” has certainly been elevated and investors should take extreme caution at this time.  Again, expecting near-term support to “hold” does NOT mean that we are near-term bullish.  On the contrary, we continue to look for increased market volatility and fairly narrow trading bands over the coming days/weeks.  This outlook is of course contingent upon avoiding any major sovereign debt “blowups” and geopolitical upheavals (a very real risk at this time).

While the SPX, Dow Jones, Nasdaq and RUT are still holding critical support levels, they are dangerously close to that “all bets off” level.  For now, however, we would look for the RUT to trade within the 775 – 815 range with significant resistance at those upper levels.  If the 775 does not hold, 750 would be the next level of support.

We continue to closely monitor the equity markets.  Our trade, however, looks GREAT and should be another “no brainer” for the month of April!

The RUT closed today at 788.92.  Our 860/870 “Bear Call” credit spread has just over one week to go before option expiration and our trade still looks to be in great shape at this time.

Market Close –> Wednesday, May 2, 2012

U.S. equity markets heading lower today after some bearish economic news out of Europe AND a very disappointing ADP employment report out of the U.S.

Markit’s Eurozone Manufacturing Purchasing Managers’ Index dropped to 45.9 last month from 47.7 in March, marking its lowest reading since June 2009.  In our opinion, the European economic and fiscal concerns are more severe than most of Wall Street will admit and will almost certainly have a “spill over” affect across the globe.

Today’s ADP report was just another confirmation that jobs are NOT being created.  Employers in the private sector added just 119,000 jobs in April according to the ADP report, short of expectations for 170,000. This report is closely watched ahead of the key monthly government jobs report, due at the end of the week.

Again, none of this news is really “news” in our opinion and should not be a surprise to anyone.   In addition to chronic under/unemployment, housing data remains weak and there continues to be more confirmation of slowing economies within the emerging markets.  Add to that, global fiscal and monetary nightmares and the European debt crisis which is STILL a crisis waiting to manifest itself in the near future…..

While corporate earnings have generally been meeting (or beating) consensus estimates for the quarter, much of the guidance going forward has been largely discounted or discredited up to this point.  Many companies are warning of decelerating sales AND contracting profit margins!

For now, our short-term outlook remains unchanged.  As we mentioned in late April, this latest move may soon run out of steam as we enter the month of May, earnings season is behind us and all eyes are once again focused on a crumbling Europe and fragile U.S. economy.   The RUT continues to exhibit near-term and intermediate term weakness and poor price action.  While support levels have held up to this point, the RUT continues to hit “lower highs” and increasing resistance.  Also, our stochastic models, money flow indicators are confirming price action as this point.

Market Close –> Thursday, April 19, 2012

Stock trade deep into the red again today as markets face anther barrage of weak economic data, slowing global growth and continuing sovereign debt worries.

We hate to sound like a broken record BUT…. Is this continuing weak economic data really a surprise to anyone??  Today, more disappointing unemployment reports were out, more weak housing data and more confirmation of slowing economies within the emerging markets.  Add to that, global fiscal and monetary nightmares and the European debt crisis which is STILL a crisis waiting to manifest itself in the near future…..

Other than waving a “major wand”, does anyone expect conditions to improve without fundamental and significant structural changes/improvements within the Western world?  This includes more honest and “friendly” policies regarding taxes, the regulatory environment, capital and credit concerns, re-tooled financial systems and a skilled and competent labor force! Expecting sustainable economic growth within a “broken system” is completely unrealistic in our view!!

In regards to our current SPX “call spread” position, Option Empire subscriber will post another 3.09% profit tomorrow morning.   Congratulations!  In regards to the upcoming May cycle, we would have ideally preferred the markets hold prior March 2012 levels (a great “bear call” trading opportunity) but we have to deal with the market opportunities which are available at this time.

Currently, price action is terrible, institutional money flow has been indicating “selling” pressure again for some time now and economic fundamentals are eroding, NOT improving.

For now, stayed tuned as we prepare to the May 2012 option cycle to begin next Monday!

The SPX closed today at 1376.92.  Our 1485/1495 “Bear Call” credit spread expires tomorrow morning….. another winner!!

Market Close –> Tuesday, April 17, 2012

Stocks rallied today….even though the “relief rally” is likely not sustainability.  Initial fears regarding Spain’s bond auction today subsided as the auction went better than expected.  Also, corporate earnings have thus far not disappointed the street.  Up to this point, corporations have been able to “set the bar low enough” and “over deliver” in regards to last quarter’s earnings.

While this relief rally may give the “bulls” some optimism, the technical damage incurred this month can certainly not be dismissed or negated.    The S&P 500 did however trade through its 50-day moving average today (with impressive price action).   The conviction, on the other hand, was lacking (trading volume was very low today).  While the DJ Industrials was also back above its 50-day moving average, the Russell 2000 remains in technically bearish territory and below its 50-day moving average.

For now, today’s move should not be viewed as a “sentiment reversal” day and has certainly not proven that it has “legs”.  In fact, a better-than-expected earnings season may actually prove to hinder further upward momentum within the equity markets.  With earnings failing to indicate clear evidence of “slowing”, the Federal Reserve and the case for further quantitative easing may be put on hold over the near-term.    With uncertain economic fundamentals and further quantitative easing on hold, equity markets lack the catalysts to propel stock higher.   Also, we are fast approaching “May” and bullish momentum is quite often very difficult to sustain during this seasonal period (May through October).

For now, we continue to monitor the markets in preparation for the May 2012 option cycle.

The SPX closed today at 1390.78.  Our 1485/1495 “Bear Call” credit spread has two days (plus Friday’s Opening Settlement) to go before option expiration and our trade looks like another winner!!

U.S. stocks trading lower again today as equity markets START coming to grips with global economic realities.  Selling accelerated near the end of trading with the major averages closing at or near their session lows.  Based on data released today, China’s economy expanded 8.1% in the first quarter, a rate that was slower than expected and the country’s weakest pace in nearly three years. In addition, the “PIIGS” are back on the “risk radar” as the European debt crisis continues to unfold and unravel.

Again, this should really not be “news” to most informed investors/citizens.  Our economic forecasts (which are not necessarily synonymous with our market outlook and trading) have remained unchanged since our 12/31/2011 analysis –   “Serious problems in Western Europe (and U.S. economy), combined with slowing global emerging economies (i.e. China and India), may soon put the global growth story in jeopardy.  U.S. stock markets have “rebounded” appreciably from the March 2009 lows, largely due to “questionable” monetary policies (US and Europe), the stellar growth within the emerging market economies and the “hopes” of global economic recovery (ideally a sustainable recovery).  The rapid emerging market growth, however, is slowing considerably.  China’s GDP is slowing and with Europe’s economy contracting even more than previously anticipated (China’s #1 export destination), China’s robust growth may continue to cool.  India recently “ratcheted” down GDP rates from 8%-9% down to 6% and some estimate actual growth rates closer to 5%.  Without robust emerging market economies (and Europe entrenched within another recession), U.S. growth could easily slip from a lackluster 2% level to a “flat to negative growth” outlook (recession or even worse). “

As this point, the emerging markets and “BRIC” countries continue to decelerate from the robust growth rates experienced in recent years. India, whose economy is hamstrung by political corruption and poor infrastructure, is settling back into a 6%-7% growth band. Even with the continuing commodity boom, Russia’s economy only managed to grow about 4% in 2011. And in 2011, Brazil turned in an unspectacular performance of about 3% growth.

Up to this point, corporate earnings have continued to grow….but for how long?  Year-over-year comparisons will become much more of a challenge going forward.  Combine this with a global economic slowdown AND the U.S. dollar appreciating (as foreign money flows into U.S. assets, including the dollar), corporate earnings may indeed start to disappoint and earnings estimates could very likely be ratcheted down as we continue through 2012.

Fundamentally speaking, the economic data (and realities) simply do not support much potential upside within equity markets in the foreseeable future….in our opinion.  What does that mean to the stock market over the near-term however???….absolutely nothing!!

Again, it is important for traders/investors to realize that short term moves within equities markets are NOT necessarily driven by fundamental factors (in other words, just because the market is going up does not necessarily mean that “things” are improving).   However, investors should NOT let longer-term outlooks, analysis and opinions dictate their short-term trading decisions.  Again, we are concerned only with conservative, high probability, short-term trades based on the what the market is telling us at that specific time (market technicals), and NOT investing capital for the long-term based on what should or could potentially transpire in the months and years ahead.  In our opinion, the LATTER is extremely RISKY!

Regardless of the long-term market performance, we continue to subscribe to our basis investment philosophy – investors should have long-term objectives but manage their capital and risk on a short-term basis.  With our short-term credit spread strategy, however, we do not have to make this prediction, nor put our capital at risk placing a bet on such a long-term prediction.   We are only concerned about “short-term” market activity (in our case, typically 21 – 31 days).  We are perfectly content with our 3% – 4% average monthly profit, without being at the mercy of the equity markets going higher and regardless of the market performance!

At this point, our SPX call spread position is in great shape going into option expiration next Friday.  We are monitoring the markets closely in preparation for the May option cycle which begins a week from next Monday.

The SPX closed today at 1370.26.  Our 1485/1495 “Bear Call” credit spread has one week to go before option expiration and our trade is in great shape at this time.

Market Close –> Tuesday, April 10, 2012

Ouch!!  Stocks tumbled again today, breaking through KEY SUPPORT LEVELS!  While the S&P 500 held 1375 level yesterday, all bets are now off as the SPX sliced through 1375 like butter today, closing at 1358.59 (session lows).  The S&P 500 and Dow Jones incurred their 5^th straight day of selling.

When markets “correct”, selloffs are typically fast and often severe.  Even though we were anticipating market weakness and positioned our April trade accordingly, we are somewhat surprised that the S&P 500 has breached key support levels so quickly.

As we anticipated, volatility levels spiked again today as fear and uncertainly are starting to permeate the global equity markets. The CBOE Volatility Index (VIX) jumped 8.4 percent to 20.39, and was up for the eighth straight day (its longest streak of consecutive gains in nearly nine years)!  At its session high, the VIX touched 21.06 – up almost 12 percent for the day.

Even though the S&P 500 is still up 8 percent so far this year – compared with its gain of 12 percent at the end of the first quarter – it has fallen 4 percent in the past five sessions, its worst streak since November 2011.

After hours, however, a positive earnings report from Alcoa may give the bulls a bit of optimism in tomorrow’s trading.  For now, we see very limited upside within the equity markets with an obvious downside bias.  As we have mentioned, however, the Federal Reserve and monetary policies have to a large degree put a “floor” under this market.  While this “floor” will likely hold over the near and intermediate term, it will not hold over the long-term.

The SPX closed today at 1358.59.  Our 1485/1495 “Bear Call” credit spread has less than two weeks to go before option expiration and our trade is in great shape at this time.

Market Close –> Monday, April 9, 2012

Last Friday’s poor jobs report, along with recurring concerns over Europe’s debt crisis, are finally starting to take a toll on the equity markets.   Again, this is really not “news” in our opinion….we have been discussing these issues for weeks/months now.   However, markets are often slow to react in the short-term and almost always trade on momentum and emotions (fear and greed).

April’s market action has been decisively different than the typical trading days of January – March 2012.  Again today, breadth and weakness was very evident throughout the equities market with an obvious lack of “buyers”.  At least for now, those “buy on the dip” investors are nowhere to be seen!   In addition, we are NOT seeing any uptick in call buying or activity (indicating investors do not necessarily see this as a buying opportunity).

While the major averages closed slightly off their respective lows of day, selling pressure entered the markets during the last hour of trading (much like last week).  From a technical perspective, the SPX did manage to hold a key support level (SPX 1376).  IF the SPX violates the 1376 level in the near-term, it is highly likely that more selling will enter the equity markets and 1350 would become the next level of key support.   While the Russell 2000 looked like it was on the verge of a bullish breakout during March, the RUT has broken down significantly in April and trading with very bearish indicators.

Also as we anticipated, volatility levels have been increasing and indeed spiked higher today (up 12.5% today alone).

Alcoa will kickoff earning season tomorrow and will undoubtedly be critiqued very closely since it is often viewed as a proxy of global growth (especially Europe and the emerging markets at this point).   As most of our followers know, we have long been critical of “economic growth estimates” and market P/E multiples and multiple expansion argument.  Assuming growth estimates DO begin contracting, we would foresee a tremendous amount of “pressure” being placed on the Fed to act once again with further monetary easing.

For now, we see very limited upside within the equity markets with an obvious downside bias.  As we have mentioned, however, the Federal Reserve and monetary policies have to a large degree put a “floor” under this market.  While this “floor” will likely hold over the near and intermediate term, it will not hold over the long-term.

For now, our trade looks great and baring any extraordinary runs, we should coast into option expiration without a hitch.  We shall see if selling persists or if stocks can find support at these levels.

The SPX closed today at 1382.20.  Our 1485/1495 “Bear Call” credit spread has less than two weeks to go before option expiration and our trade is in great shape at this time.