Another Day, Another Magical Mystery Tour

Pre-market futures are up, especially over at the Naz.....I forgot what it was like to watch the price action from the day before, do a quick check of the news and after-market trading, then take a solid stance on what I thought the market was going to do the next day, and then actually see it play out the next day. We just cant' get through a day without the Magical Mystery Tour bus barreling down Wall Street.

Here's a recap of the significant news and how it's affecting various areas of the stock market. First, AA and MOS miss earnings yesterday after the close, which causes selling in commodity stocks. Then this morning, the Treasury (probably in reaction to the selling in the stock market yesterday.....this is new.....) announces that bailout funds will extend to life insurance companies, so back come the futures, especially in financials. Then JNPR "warns" (remember this is earnings warning season right now), but it's a good warning, the company raises earnings guidance and the stock shoots up pre-market, which takes the Naz and tech stocks with it. Then BBY and FDO beat earnings and raise guidance respectively, which causes their stocks to run up sharply pre-market - taking Retail stocks with them. And finally, the news byte that you will probably hear as much about today as any, PHM announced it will buy CTX, which is the first major merger/acquisition in homebuilders since the Real Estate Wreck started. Mergers are an automatic, knee-jerk, Pavlovian response for traders. Merger in fundie trader-ish really means, the homebuilding sector is "stabilizing" (regardless of fundamentals or outlook, it's about gambling that they will be right 6-9 months from now). And of course, you know what the word "stabilizing" means in fundie trader-ish.

Just to give you an idea how far upside down the news bogeys and traders can take things in only twelve hours.....Last night, AA closed post-market trading down 3% in reaction to their earnings (you know, the actual data that a company reports that actually tells us how they are actually doing, and then in their own actual words they tell us how they are actually going to do in the next quarter because they are the actual experts in their own actual industry). This morning, buoyed by the rising tide of "positive" news bogeys, AA actually (there's that word again) gapped up and is trading up 4% early in the day.....

By the way, this is a prime example of a stock giving a "technical" signal - which is a confirmed Bull Flag bounce - where I don't even bother messing with the signal because I know why it's up, and why it was down last night. That's the essence of a Technical Discretionary trader, which is what I have been teaching you, and what I am.

7:52 am MT: When the Magical Mystery Tour bus (hereafter known as the MMT bus) goes blowing through Stock Market Street it can take quite a bit of sorting out to finally get to a trade (of course, this has been the "norm" for the past 15 months). I was looking at tech for calls, I was looking at agriculture/chemicals for puts, I was looking at homebuilders for calls, I was looking at the index ETF's for puts......

and in the end, I'm still looking.....

The DIA (and SPY) look kind of interesting for small put plays right now because they just tested yesterday's gap and rolled over. But I'm not exactly breathless for my trading yet this morning.

8:10 am MT: You can see traders are having as much fun deciphering the news as I did this morning. The problem for the Little Bunny FuFu's who panicked, knee-jerked, and bought/sold whatever their little playbook of how to beat the market told them to do this morning so they could get a "jump" on everyone else, is that they are now stuck in a toss of the coin winning/losing position, and they're still staring like, well, like a bunny in the headlights.....

Therefore, the market gyrates, and it will probably continue to do so for awhile as traders run around trying to jump each other this morning until the dust settles. I usually don't try to outguess a morning like this. I actually wait for the dust to settle and see what the market consensus is (even if the consensus is illogical, I still need to go in the direction of the river of money.....which may become more like a creek if the little bunnies keep knee-jerking).

8:20 am MT: The put opportunity I mentioned earlier is playing out. If the SPY (0r DIA) gets into the area of yesterday's lows, you probably want to take 1/3 to 1/2 the trade out and tighten stops. Use the 15m charts to guide you right now.

8:26 am MT: Here is a 15m chart of the SPY to guide you on the put exits if you traded them when I highlighted them earlier:
(click on image to enlarge)

You can see that you want to lock 1/3 or so of the trade right now, then lock in another 1/3 of the contracts if the SPY (market) reaches the 81.25 area (sheesh, we've been waiting for that area for awhile.....). Keep a tight stop on the last 1/3, but leave a little there in case the market has a bit more selling.

Oh, by the way, that's a nice, sharp fade off the "confirmed technical bounce" (more than 1% above the high of the "low day" of a Bull Flag) on AA this morning. I'm glad I'm a Technical Discretionary Traders and I don't trade in a vacuum. We'll see if AA can bring this back later in the day, but it's a bit of Mr. Toad's Wild Ride over there right now.....

8:55 am MT: The SPY is testing the mid-point of the long 15m candle that dropped the market to the short term support area. If the SPY pops back up through 82.00 (slightly above), you will want to liquidate the last of the SPY puts and just walk away with a small profit. If the SPY rolls over from here, then follow the guide I posted a few minutes ago.

Here is the updated 15m chart of the SPY:
(click on image to enlarge)

9:02 am MT: You will want to be out of the last of your SPY puts and just take a small profit and walk. If the SPY (market) has another gap test rollover, and stays in a Rectangle on the 15m charts (the Rectangle has a gap on either side right now), then there may be another similar put opportunity later (or perhaps a call opportunity on a Rectangle breakout, etc.). We shall see.....

There's no reason to get overly aggressive with anything this morning. If the market breaks out to the upside a bit, then maybe some calls, but don't look for stuff that's not there. Some days (a lot of days) you may just tip toe around as you wait for the bigger days.

I am going to go into "project" mode again for awhile, I have lots and lots to do to get ready for the next stage of this service if I want to have it ready by next week.

1:00 pm MT: What an exciting day.....Drops and Pops, and Pops and Drops. If you tried to overwork your trading today, you're probably showing very little gains for a lot of effort. There were a couple of signals today, including the failed signal (breakout of the 15m chart Rectangle), but nothing to shout about. This is a good lesson in identifying the mood, deciding on how much action you think the day will see in one direction or another, and then deciding if you want to take much action yourself. I could smell the goof day right out of the gate, which is why I titled the post "Another Magical Mystery Tour" and said to tip toe and not go full bore.

There are still things that can be gleaned from a day like today, so it's not a complete loss. I think the most important thing that today shows is indecision and trepidation ahead of earnings season. The breakout and then failure of the 15m chart Rectangle means that earnings season is a going concern, as is the Soros Memo.

Here is an updated 15m chart of the SPY showing the breakout and failure:
(click on image to enlarge)

The fact that the Googly-Eyes refuse to give up the top side of the gap at 81.50 ( short term support) on the SPY (market) shows the stubbornness of some fundies to capitulate ahead of earnings. This segment of traders wants proof before they decide to sell or buy, which means that the market will probably see more Drops and Pops and Pops and Drops all the way in to about Wednesday of next week. The traders that got the Soros Memo or are concerned about earnings season will probably continue to sell a bit, and the traders that want proof of earnings and are digging in their bullish heels (a bull in heels?.....I guess that's as good a metaphor as any for the market right now.....) will continue to buy dips because their three-week playbook tells them to do so. The result?.....More of today for the next few days (outside of another beloved news bogey of course.....).

1:30 pm MT: Right on cue, the SPY bounced at 81.60 and is headed for the top end of the Rectangle. The thing about the bounce that's hilarious to me, and again exemplifies the one segment of traders in the "we want proof" camp, is that they didn't even wait for 81.50. They were so worried about missing the "great dip-buying opportunity" that their three-week playbook told them to "carpe diem" that they decided to get the "jump" on all the other traders by buying at 81.60. (Because the SPY on the 15m candles has bounced on 81.50 about eight times in the previous two days, they wanted to "get in ahead of everyone else on this once in a lifetime buying opportunity", so they got the jump at 81.60.....these are my dear Little Bunny Fufus, aren't they cute?)

The two things that make it so hilarious to me are: 1. The freneticism of the Little Bunny Fufus over nothing. 2. The fact that the other segment of traders has been proving to them for the past three days that they are just as excited to sell every time the bunnies buy.....

Here is another updated 15m chart of the SPY showing our little bunnies jumping the market because....well, just because it's fun to watch (or not):
(click on image to enlarge)

It will be interesting to see if we get a Bunny Close like Monday, or we see a We Got the Memo Close like Tuesday (well, not that interesting, but I'm running out of amusing things to say about this market.....).

2:02 pm MT: Market Wrap: Bunny Close.....

The only market calendar item of interest tomorrow is Initial Jobless Claims. So outside of a "startling" report (good or bad), and outside of a news bogey, then expect more back and forth price action.

The market has been a bit loose and gappy the past three days, which you can see best on the DIA chart:
(click on image to enlarge)

Normally I would say the market is in a Bull Flag variant, so watch for another leg up to the 81.00 (short target) to 83.00 (long target) area. But with earnings season coming up on top of the loose, newsy price action recently, I would say that I'm not going to just cherry pick calls right here and hope for a nice ride. I will wait for a more confirming move one way or another.