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MARKET DIRECTION CALLS
August 2 2011 - Selling Intensifies
August 1 2011 - Bear Returns
July 28 2011 - Before The Open
July 27 2011 - Down But Are We Out?
July 20 2011 - Stock Market Volatility
July 18 2011 - Investors' Nervousness
July 15 2011 - Earnings VS Bleak Data
July 14 2011 - Below 1310
July 13 2011 - Ugly Looking Chart
July 12 2011 - Razor's Edge
July 8 2011 - Nasdaq Leads The Way
July 5 2011 - Expected Weakness
July 1 2011 - Overbought
Jun 28 2011 - July Rally?
Jun 27 2011 - Mixed Signals 
Jun 21 2011 - Bottom Or Bounce?
Jun 16 2011 - Raising Cash
Jun 15 2011 - More Downside To Come?
Jun 14 2011 - Bounce or Bottom?
Jun 12 2011 - Batten Down The Hatches
Jun 6 2011 - Bounce Sometime Soon?
Jun 2 2011 - Sell Signals and Warnings Everywhere
Jun 1 2011 - How Bad Could The Selling Get
Jun 1 2011 - Tread Carefully - Markets Remains Overvalued
May 31 2011 - Success - 100 Day Moving Average Tested
May 17 2011 - Be Careful Out There
Apri 18 2011 - Two Bears Compared
Apr 13 2011 - Why I Bought Puts Today
Apr 4 2011 - Breaking The February Highs
Mar 16 2011 - The Art Of Being Wrong
Mar 15 2011 - Market Remains Resilient
Mar 11 2011 - Trend Is Down
Feb 25 2011 - Trend Turning Bearish
Feb 11 2011 - Still Up - But Watch For June
Jan 3 2011 - Trend Remains Positive

 

Market Direction Call S&P 500

August 1 2011 - Bear Returns

 

Goodbye Old Friend, Goodbye - The Bull Is Gone

Today's action in my opinion definitely indicated any bounce has to be sold into. If the market climbs in the next day or two I will be buying puts. If the market climbs this fall, I will be buying puts.

With today's market action, the bears now have the upper hand. The charts below show the market now in peril of moving even lower.

 

The NASDAQ which lead the market since March 2009, holds the only hope for the markets. It has not broken the 200 day moving average and is doing its best to hold onto to some semblance of bullishness.

NASDAQ Stock Chart - August 1 2011

However the other charts are not very positive. The S&P 500 easily touched the 200 day moving average. Next stop is only 3.3% lower which marks the March 2011 low of 1249.00.

S&P 500 chart - August 1 2011

If the March Low of 1249 breaks than the next stop will be another 10% lower at 1175.00. The first collapse of stocks from the May high to 1249 marks just an 8.8% retrenchment. But a move to 1175.00 would mark a pullback of almost 19%, which would be a fairly severe correction and more in line with the correction last year before QE2 stepped in and turned the market around. The chance of QE3 is probably limited particularly with the new "austerity measures" introduced today. As well even if introduced I believe QE3 will be too little and too late. Unemployment comes out this Friday and could mark another blow to the markets.

S&P 500 - 2010 to 2011 - 1 Year Chart

The July 18 2011 XLF low was $14.46. Today the XLF reached $14.62. From its high of $17.20 on Feb 18 2011, the XLF has fallen 15%. With no real outlook that would point to a recovery in financials, the stock market is going to have a very tough August.


MARKET CALL SUMMARY - BEAR RETURNS

In my opinion the bull market is over and the bear market is beginning. This doesn't mean stock prices will collapse, but it does mean that the strategy of selling puts has to be carefully implemented unless you want to be assigned stocks at what could end up being higher levels.

I will write an article shortly on selling naked calls which is a much better strategy when the markets are in a downtrend.

I will be purchasing SPY puts on any bounce higher. Meanwhile for my positions that have covered calls, I will be taking opportunities in any rise in stock values to sell calls in the money as I am sure that many of the covered calls once sold in the money, will eventually end up out of the money as stocks pull lower.

Bear markets are a different type of beast. They have sideways actions, big bounces and bigger sells. The bear market of the 1970's lasted almost the entire decade. It was a great time for option premiums. The bear of 2000 to 2003 and 2007 to 2009 were pretty severe with losses of more than 50%. The chance of this bear market seeing such collapses is probably as great as any previous ones. Just remember that bear markets take months to unfold and normally collapse near the end. Inbetween there are lots of opportunities to make profits. There is no need to fear a bear market, but it is worthwhile implementing different strategies and remaining conscious of the fact that the bull market is probably ending.

 
 

 
 

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