Market Continues the Bounce

JPM beat earnings expectations and is giving Financials a boost as Shorts continue to run screaming into the ocean. The economic reports this morning were actually pretty good as well. Housing Starts beat expectations, and Weekly Jobless Claims were lower than expected. The market gapped up out of the gate before the "still nervous" Bulls jumped screaming into the ocean. This is starting to get purely hilarious to watch. I told you we were in a Hot Potato market, and it continues to play out. I can see all the Bears and Bull churning around in the ocean, treading water, bobbing around offshore and looking around with startled looks at each other. "You're in here, but I just jumped in?" "What are you doing out here, I thought I was the one that had problems?" "Well, I'm supposed to be out here, it's the end of the world, don't you know it?" "No, no, I'm the one that belongs out here, we're all going to die when the fiery comet hits the earth!"

So the gyrations continue.....and so do the intra-day swings for directional players.

8:20 am MT: Here is a brief recap of the earnings reports and sector effects so far: JPM is up sharply and giving Banks and Brokers a boost. NUE and RS are down a bit and causing Steel to gyrate to the downside a bit. NOK is up sharply and giving Wireless a little boost. EBAY is down sharply and causing Retail to be soft this morning (although Retail is still more concerned about the future price of oil). UTX and ITW are up strongly and giving Cyclicals a boost. And XLNX doesn't appear to be hurting Chips with their earnings miss since INTC and ALTR had strong reports that boosted Chips yesterday. So the market will gyrate and spit and hiss and everything else it does while traders work their way through all the earnings, and all the earnings to come.

8:30 am MT: Here is a recap of my flurry of trading activity from this morning: I stopped the HAL puts for a 1.07 loss. I stopped the NE puts for a 1.00 loss. I sold the APA puts at breakeven. I stopped the MDT calls for a .55 cent loss. I sold the ADBE calls for a .15 cent gain. I'm still holding a very small call position on COST, which is my only directional trade right now. The market may take another leg up later in the day, but I'm not planning on doing anything for several hours because it looks like it could be 2-3 hours before the market mounts an attempt to bounce some more.

Use the 60m charts on the SPX, Dow, and Naz for now to guide you through the next possible bounce intra-day. It will probably be several hours before a bounce, and then we'll see if the day finishes in the green.

9:00 am MT: Here is a recap of my Iron Condor trade management - I unwound (closed) the Bull Put Spreads on all three Iron Condors this morning:

The IWM Bull Put was a net debit of .20 cents. The original Iron Condor net credit was .32 cents plus the Bear Call Spread Hedge of .12 cents. So the total trade is still a .12 cent credit and the possibility of getting assigned on the riskier Bull Put side is gone. I took a potential loss and turned it into a probable gain, which preserves the profits on all the other Iron Condors I have done this year.

The SPY Bull Put was a net debit of .42 cents. The original Iron Condor net credit was .35 cents plus the Bear Call Spread Hedge of .08 cents. So the total trade is still a .01 cent credit and the possibility of getting assigned on the riskier Bull Put side is gone. Once again, I took a potential loss and turned it into a probable gain, which again preserves the profits on all the other Iron Condors I have done this year.

The DIA Bull Put was a net debit of .30 cents. The original Iron Condor net credit was .27 cents plus the Bear Call Spread Hedge of .11 cents. So the total trade is still a .08 cent credit and the possibility of getting assigned on the riskier Bull Put side is gone. So, like the other two, I took a potential loss and turned it into a probable gain.

Those of you who have been following along with me on the Iron Condors should be able to see the concepts starting to come together. The idea is to win on at least 3 out of every 4 months. And in the system I can take a max loss on the loser month and still be very nicely profitable overall. When I can take defensive measures to maneuver a loser month into a slightly profitable month it just adds more gravy on top. And of course, the one-point spread ETF Iron Condors with good money management allow me the comfort of running as far as I need to in order to give myself the maximum flexibility for maneuvering. In this case I took it right to the day before expiration. The losers don't always work out, but when you can maneuver out of them it just piles on more profits for the year-end tally.

11:30 am MT: The market is continuing the bounce that started yesterday. The Naz and the Dow both reached their 20dma's. The Naz has even exceeded the 20dma a little. Shorts continue to cover, and perhaps there is even a little bargain buying going on.

11:40 am MT: I took advantage of the current leg up on COST to lock down my profits on the trade. The stock may run another .50 - .75 cents, but I can't watch it for a bit, so I closed it out. The trade was a .84 cent profit, or 21% gain.

One other side note: I have talked at length about the difference between Day Trading and Swing Trading, including Intra-day Swing Trading. It's been years since I Day Traded options, so I went ahead this morning and experimented with Day Trading options on several higher priced stocks on the 5m charts (which is about as far down the time frames that I can stomach). I came to the same conclusion that I have always had about Day Trading options, which is that options are a fairly unfriendly vehicle for trying to catch quick moves and breakouts on the 1m or 5m charts. Every time a stock went through a key price point and gave a signal the market makers jacked the premiums or widened the spreads. Even when I caught the move right I would still be breakeven or lose money because of the spreads. If I had traded the stock outright, I would have made a profit because there was no artificial inflation at the buy signals. But because I was trading options I actually lost money. I've said all along that I don't Day Trade options, and the lowest swings that I like to look at are the 30m or 60m time frames. I might look at the lower time frames to guide me, but I don't take them as the base buy signal. When an Options Swing Trader drops down to the 15m time frame or below, they run into serious slippage risk (inflated premiums, higher commissions, and the wider spread between the bid and ask than on the stock itself, or a futures contract). I've preached that concept for a long time now, and the new "penny" spreads have not changed my mind. Just because something can trade in a penny spread doesn't mean that market makers will tighten the spreads to a penny. Market makers have too much leeway to play with premiums and spreads to make Options Day Trading consistently profitable for my style of trading. However, I haven't made it my life's work to develop a day trading system for options, so that doesn't mean someone else can't create a system. And I have developed some systems around the 15m charts that will work on higher priced stocks with narrower spreads.

3:30 pm MT: GOOG reported earnings, and whatever the numbers are the initial reaction isn't making traders very happy. The stock is down 8%, or over $40.00 in after-hours trading. We'll see where this goes, but it could be that the Naz is headed for a bit of a gap down tomorrow morning.

8:00 pm MT: Market Wrap: Here's the quick version: Financials continued to bounce on the positive JPM earnings. Steel rolled over on the NUE earnings. Tech, Retail, Cyclicals, and Leisure/Discretionary Spending all bounced. The Dow and Naz made it through their 20dma's, the SPX is lagging because Energy and Commodity stocks continue to drop.

After-Hours Earnings: Here are some approximate numbers: GOOG is down 8%, MSFT is down 6%, MER is down 6%, COF is down 5%, ZION is down 5%, GILD is down 3%, and IBM is flat. Essentially the market is probably going to gap down sharply out of the gate tomorrow morning. The Q's are down quite a bit in after-hours trading. Things could change a little bit tomorrow morning. Here are some possible scenarios for the morning earnings reports. If C blows their earnings tomorrow morning, then Financials will probably sell quite a bit, but if C has decent earnings then it may mitigate the selling that is going to come from MER and COF. Also, SLB's earnings in the morning will affect Energy, and HON's earnings will affect Cyclicals.

As it stands, we are probably looking at early selling, possibly sharp selling. Tomorrow is also options expiration and Friday. So expect plenty of volatility.