The SP500 Roadmap Chart is trending nicely, albeit at an irregular degree setting. If the pattern continues we would look for the current swing to hit the wall in the price and time area shown in yellow. We would also be looking for a squaring of price and time on a regular basis.

Get a free Trend Analysis on almost any symbol - stocks, futures, forex.

January 15, 2008, 11:55 am
Wall Street Journal

The next bubble in the U.S. economy should be taking hold right about now, entrepreneur and investor Eric Janszen writes in Harper’s Magazine.

After years in venture capital, Mr. Janszen now runs iTulip, an investment Web site premised on the idea that the financial sector has locked the U.S. into a damaging cycle of bubbles that are disconnected from the actual health of the economy. According to his theory, the finance, insurance and real-estate businesses survive by pouring capital into a sector, creating a self-fulfilling prophecy that asset prices will rise. When prices collapse back to their true value, financiers make up their losses by pouring capital into another sector and creating another bubble.

Where will the next bubble turn up? In Mr. Janszen’s view, the alternative-energy industry’s expansion is showing some of the same patterns that allowed values to swell far beyond their true worth during the dot-com and housing booms. For starters, green energy is popular with the media and with politicians – “energy security” has become a catchphrase for both Democrats and Republicans. It has received favorable legislation involving loan guarantees and subsidies, just as the Internet got a sales-tax amnesty in the 1990s and deregulation allowed banks to offer more credit to potential homeowners.

Finally, the industry is flush with fresh capital. The Internet bubble was inflated by irrationally exuberant venture capitalists and IPO investors. The housing boom exploded thanks to the packaging of securitized debt. In the case of alternative energy, venture capitalists seem once again willing to supply the new capital.

Still, without another bubble, Mr. Janszen says the financial sector would probably collapse under the weight of the losses it incurred under the previous bubble. “The only thing worse than a new bubble,” he says, “would be its absence.” – Robin Moroney

I’ve done my best to convince you that when you are emini day trading, your exit strategy, on both good trades and losers, is more important than your entry strategy. If I haven’t convinced you of this one point, please go back and re-read everything on this web site a second or third time. Your success as a day trader absolutely depends on getting this concept and using it.

I’ve emphasized the fact that you’re going to need the best day trading advisor you can possibly find who has years of trading experience and also trades for a living.

Invest in some emini day trading courses. You will spend at least this much money and probably more fighting your own untrained human instincts, as well as fighting the professionals who (1) understand trader’s natural weaknesses, (2) know most of the public’s “retail” setups and hard stop placements, and (3) have deep enough pockets to ride out most of the intraday market moves.
If you’re thinking that the cost for a trading course is high, it may be that emini day trading is not for you, because financial markets are risky, and investing is risky. If you’re not willing to pay for the chance to decrease that risk, you may be training for the wrong profession.

Now here’s some general emini day trading guidelines.

1. Several of the RBI trading entries involve stepping in front of a quick, strong-looking move at just the right moment of emotional exhaustion to catch a small gain or a trend reversal. In order to avoid getting run over on these, you need to develop a sense of when the trend is so strong it’s unwise to fight it. In these situations, switch entries and use a pullback to RBI dynamic support or resistance to enter with the trend. This is one more area where experience and “Real-Time” training are valuable.

2. If you have 2 or 3 losing trades in a row, take a break from emini day trading. Get away from your computer screen and get your emotions under control. Then after 15 minutes or so when you go back to trading, remember that your former losses must have zero affect on the rest of your trading. The tendency will be to increase your risk in some way to compensate for the losses. This is a rookie mistake. A consistent approach (where you forget about hitting home runs to make up for any losses) will work in the long run. Anything that takes you away from your defensive posture (every trade starts out as a scalp until proven otherwise) will kill your success in the long run. Focus on the long run.

3. When emini day trading, keep a trading diary… at least until you’re making a profit for six consecutive months. But keep the log easily doable. A good way to do it is to mark your entries and exits on the chart you use, then copy and paste it into your journal at the end of the day with minimal comments.

4. Study your trading diary every weekend. Take notes of what works and what doesn’t. Write these notes in red on the charts so you can review them quickly at the end of each month. (Don’t make this a burden or you won’t do it.)

5. When you find an emini day trading method that works for you (mine or anyone else’s) don’t share it with anybody. A trading edge is like a magic trick in a way. If a professional magician tells the public his secrets, he’ll soon be out of work. I’ve recently taught my emini day trading method to some select traders, I’ve never done this before in 20+ years of successful trading. If my students keep this method private, it will continue to make a good living for those of us who have the discipline and the fortitude to trade it.

Support and resistance will never disappear from liquid markets, any particular way of trading a market edge can lose its effectiveness if it becomes popular. This is common sense among professional traders. Don’t give away the family farm. I’m not. My classes are small and infrequent, I won’t be teaching my RBI strategy long enough overexpose it, and the trader’s who take my classes sign a non-disclosure promising not to sell or share my trading strategy.

6. When emini day trading, write out a detailed trading plan that includes your exit strategy, all your entry setups, all your rules about maintaining discipline, and exactly what you’ll do if your discipline falters, regardless of the trade’s outcome. Do your best to rank your entry setups in order of highest probability to lowest. Gradually develop enough confidence in your best ones to increase your trading size when they show up, always keeping your risk per trade down to a tiny fraction of your overall trading account size. Whenever you make money by entering or exiting a trade outside the parameters of your trading plan, stop trading and remind yourself, “success” outside of your trading plan is poison. Failure is much better when your discipline slips! To make consistent profits emini day trading, you have to “program” your mind to work within your own strict parameters until your strategy become a natural reflex.

7. If for some reason you are under serious emotional stress, like a divorce or a death in the family, don’t trade real money when emini day trading. You’ll make your situation worse, I guarantee it. It would be like stepping into the ring with a broken arm to face a heavyweight. Wait until you are at least 80% back to normal. In the mean time, simulation trade with strict discipline… or just watch the market passively to improve your rhythm.

8. Be patient, optimistic, well-informed, and above all, persistent. Success in any business takes years… but when you arrive, you are the boss. If emini day trading is your successful business, you can move anywhere in the world (with an internet connection). You can take vacations any time. You don’t have to please customers or employees. There’s no inventory headache, no sales team to motivate and no advertising costs. And you’ll be doing work that’s often very exciting and always interesting. You’ll look forward to Monday mornings for the rest of your career. Actually, that may be the best thing about professional emini day trading.

Expect to spend 3 to 5 years before turning a consistent profit emini day trading. You can greatly shorten your learning curve by following my RBI Trader’s Updates. They give you my daily trading plan which is based on the most accurate support and resistance levels you’ll find anywhere. I’ve been publishing them to all levels of traders since 1996.

For more intense and in depth training, my week long “RBI Trading Camp” will help take your emini day trading to a new level. Click here to request more details. I’ll teach my strategy for a limited time, to a limited number of traders (for the reasons I mentioned above).

“http://www.TradeStalker.com”

INO TV has 11 channels (topics) with 100s of individual presentations by professional traders and instructors. We’ve been focusing on option trading lately and note that the INO TV Options Trading Channel has 82 titles of educational material to view in the Options Trading Channel alone.

Channel 7 - Options Trading
Options trading both in stocks and futures has been growing in popularity over the last few years with many investors and traders incorporating this asset class into their portfolios. With over 82 titles, this channel will teach you everything you need to know about how to trade in options.

Here is the link to INO TV

The first post in this series “Follow Up Options Tactics” is here. This is the follow up example from Options as a Strategic Investment.

A call buyer bought an XYZ October 50 call for 3 points when the stock was at 48. The stock has since risen to 58 and the October 50 is now worth 9 points with plenty of time remaining to expiration.

We presented four tactical choices for the call buyer:

1. Liquidate - take the $600 in profits and close out this trade.
2. Roll-Up - Sell the October 50. Pocket the $300 initial investment and use the $600 to buy out of the money XYZ calls that have a reasonable chance, according to the volatility, to be in the money at expiration.
3. Spread - Create a bull spread by selling a same expiration out of the money call against the profitable October 50 long call, preferably getting at least as much as the $300 cost of the October 50 and going into a zero risk situation.
4. Do Nothing - Hold the October 50 until sale or expiration. This is the only tactic that can result in total loss of the initial investment.

What are the alternatives to Tactic 1 - liquidating and pocketing the 6 points, and Tactic 4 - doing nothing, that would allow the call buyer to reduce some of the risk of staying in the position without giving up on the possibility of greater profits?

The XYZ October 60 call is selling at 3 points. The call buyer could liquidate his October 50 call for 9, buy two October 60 calls, and put $300 in his pocket. One of the attractions of this roll-up tactic is that the vanilla options trader is now playing with house money. He owns two calls for free, doubling his position, and every penny of appreciation in the October 60 call is pure profit.

If XYZ stock continued to rise substantially above the 60 strike price then Tactic 2, the roll-up, would provide the greatest reward. If ZYX stayed the same or fell backwards before expiration, however, the roll-up becomes one of the worst choices.

The final alternative, Tactic 3, has the distinct advantage of never being the worst choice.

The call buyer initiates this tactic by holding onto his October 50 call, for which he paid 3 points, and selling the October 60 call for 3 points. Because the sale of the October 60 call (the short side of the spread) matched the cost of his October 50 call (the long side of the spread), the call buyer is in the position for zero risk no matter what XYZ stock does between now and expiration.

Tactic 3 is called a bull spread.

(ed. You need a margin account and must meet minimum equity requirements to create option spreads.)

The maximum potential profit in the bull spread is 10 points, the difference between the higher short strike and lower long strike. The maximum profit can be realized only if XYZ is at or higher than 60 at expiration because the October 50 call would always be worth exactly 10 points more than the October 60 call no matter how much above 60 XYZ stock ended up.

Tactic 3 is the best choice if XYZ remains above the lower strike price but relatively unchanged at expiration. If XYZ drops below 50 then it is a better choice than doing nothing because the call buyer does not experience a loss. If XYZ rises above 60 then the 10 points profit from Tactic 3 is a better outcome than the 6 points the call buyer would have received from liquidating. And again, Tactic 3 is never the worst performer of the four choices.

You can quickly set up a matrix with real numbers to get a handle on the possible outcomes for each of the four choices.

The best or “right” choice at any given time is not going to jump out and bite you. Successful options trading is about cooly managing the probabilities. Part of that is setting a range of realistic outcomes for the future price of the underlying stock. Implied Volatility is the tool of the options professionals. You can see our Vanilla Options Toolbox video here. It’s a freebie with any of our ebooks.

In the next post in the series we will cover some defensive options strategies you can use to salvage a position when the stock moves against you.

If you are a call buyer, and you’ve been fortunate enough to have the underlying stock rise rapidly in price, you have an unrealized profit. But now you’re torn between taking the profit or holding onto the option in an attempt to generate even more profits with an expectation that the stock will continue to rise. So the question is that once you have an unrealized profit with some time remaining to expiration, what are the tactical choices you can make to protect a profit, and what are the different risks involved?

If you’re in this situation you have four choices about what to do now.

1. You can liquidate the position by selling your long call and pocketing the profits.

2. You can sell the call you own, pocket some of the cash, and use the remaining part of the proceeds to buy as many contracts of an out of the money call as you can.

3. You can create a bull spread by keeping your long call and selling a higher strike price call in the same expiration month.

4. You can do nothing and continue to hold current option contract until expiration.

From this point forward in time each of these choices presents a different level of risk and reward.

If you liquidate your current position and take the profit, Tactic 1, that ends the possibility that you can get any further appreciation from it. By the same token you cannot lose any money on the position either. This is the least aggressive tactic. If the underlying stock continues to rise, say to more than 10 points from its current level, all of the other choices would outperform the complete liquidation. However, if the underlying stock would decline below your strike price then liquidating your position now would have been the most profitable of the four strategies we listed above.

In Tactic 4 you do nothing but hold the option until expiration. This is the riskiest tactic because it’s the only one that would create a complete loss in the event that the stock price fell below your contract strike price at expiration. However if the stock price continued to rise to expiration then Tactic 4 would have proven to have been the most profitable.

Tactic 1 and Tactic 4 are easy to figure out and are probably what most vanilla option traders do all the time. In the next post we will set up a real world scenario and see how Tactic 2 and Tactic 3 would turn out with different stock prices at expiration and then compare them to the outcomes of Tactic 1 and Tactic 2.

By Susan C. Walker, Elliott Wave International
January 7, 2008

In the bleak midwinter,
Frosty wind made moan,
Earth stood hard as iron,
Water like a stone…
(From “A Christmas Carol” by Christina Rossetti)

Shawn Colvin sings a beautiful song based on this poem by Christina Rossetti, reminding us of the bleakness of midwinter. That is exactly where the housing market seems to be now – facing its very own bleak midwinter of falling prices, rising mortgage rates and growing inventories.

The latest report of the S&P/Case-Shiller home price index shows that the price of houses fell 6.7% in October, year over year. That is the largest year-to-year decline drop since April 1991. Think of it – if you had bought a home for $300,000 in October 2006, it is now worth about $280,000. And suppose you just got a new job and need to move? You are going to have trouble selling it at that price, too, thanks to so many foreclosed homes on the market. One realtor in Phoenix explained to a Wall Street Journal reporter that local residents are now competing with foreclosed homes selling for $50,000 to $100,000 less than other houses on the market. “The sellers now are having to reduce their prices by 20% to 30% to compete,” she says. (Wall Street Journal, “Pace of Decline in Home Prices Sets a Record,” 12/27/07)

At a meeting of the New York Society of Security Analysts on January 7, U.S. Treasury Secretary Hank Paulson said this about the U.S. economy: “We will likely have further indications of slower growth in the weeks and months ahead.”

Paulson and central bankers at the U.S. Federal Reserve recognize that they, too, face their own bleak financial midwinter. It’s not just the mayhem brought on by the subprime mortgage debacle, the implosion of the housing market and the ensuing credit crunch; nor is it that the U.S. economy lurches toward a recession and hard times.

No, it is something bigger than that. Public opinion or social mood, as we call it here at Elliott Wave International, has shifted from positive to negative. When that happens, financial heroes find themselves falling from their pedestals onto frozen earth hard as iron.

Exhibit A - The headline of a recent article on Bloomberg: “Paulson Gets Diminishing Return with Bush, Like Powell, O’Neill” and the lead: “Henry Paulson escaped the Nixon White House with his reputation enhanced. He won’t be so lucky this time around.”

Exhibit B - The lead from a recent column by David Ignatius in the Washington Post:

“When airport rescue crews are worried that a damaged plane may have a crash landing, they sometimes spread the runway with foam to reduce the probability of fire on impact. That’s what the Federal Reserve and other central banks are doing in pumping liquidity into severely damaged financial markets. Make no mistake: The central bankers’ announcement Wednesday of a new coordinated effort to pump cash into the global financial system is a sign of their nervousness….”

Nervousness is in the air now. Investors are anxious about the markets; everyone is worried about the housing market. Our Elliott Wave Financial Forecast December issue explains how housing starts (and stops) are intimately tied to recessions: “One key indicator of success in pre-dating economic downturns is housing starts, which are approaching the 1-million-a-month level that has preceded all recessions of the last 40 years.”

And the Fed is nervous, too. So much so that it announced a credit giveaway with four other major central banks (the Bank of Canada, the Bank of England, the European Central Bank and the Swiss National Bank) in mid-December to try to bolster the financial system and the banks that keep it humming. The Fed reports that banks have been stepping up to its auction window each week to purchase $20 billion. Unfortunately for the banks, most of this “liquidity” isn’t that liquid. It has to be paid back within 30 days, with interest of about 4.65%.

Just how bleak is the future for central bankers if this recently implemented plan doesn’t work? Bob Prechter explains in his just-published Theorist:

“Nevertheless, this is probably the single most important central-bank pronouncement yet. But it is not significant for the reasons people think. By far most people take such pronouncements at face value, presume that what the authorities promise will happen and reason from there. But the tremendous significance of this seismic engagement of the monetary jawbone is that if this announcement fails to restore confidence, central bankers’ credibility will evaporate.”

“At least that’s the way historians will play it. But of course, the true causality, as elucidated by socionomics, is that an evaporation of confidence will make the central bankers’ plans fail. The outcome is predicated on psychology.”

The “socionomics” Prechter refers to is a new social science he has introduced that studies how humans behave in groups within contexts of uncertainty – where fluctuations in social mood motivate social actions. It explains that rather than an event happening that affects social mood (for example, falling home prices make people feel bad), what really happens is that social mood changes first from positive to negative and then lousy things happen (for example, unhappy people make home prices fall). If you can adopt this point of view, then you can see that, in poetic terms, we are fast approaching a bleak midwinter for the economy and the financial markets.

Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company. She has been an associate editor with Inc. magazine, a newspaper writer and editor, an investor relations executive and a speechwriter for the Federal Reserve Bank of Atlanta. Her columns also appear regularly on FoxNews.com.

Options as a Strategic Investment

List Price: $80.00
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Book Description

Reflecting today’s market realities and the new innovative options products available, this fourth edition features an in-depth analysis of volatility and volatility trading; updated information on all stock option strategies, reflecting recent market conditions; buy and sell strategies for Long Term Equity Anticipation Securities (LEAPs); detailed guidance for investing in the growing field of structured products; the latest developments in futures and futures options; and the market impact of the most recent changes in the margin rules.

Packed with graphs and charts to clarify profit and loss potential, margin requirements, and criteria for selection of a position, this classic remains an indispensable resource for investors determined to master the world of options–and profit.

Tough Stuff But Worth The Effort November 24, 2007

This is a review for the non-professional investor or for the new full time investor who is considering a possible 2nd career or full time activity with their personal funds.

As an individual investor for over 30 years, I thought I knew the ropes about Options and Stocks. The first 94 pages opened my eyes to what I did not know! These pages alone have changed my investment strategy profoundly and for the better.

This is a best of breed book. It’s pithy and precise. It’s not a breezy read. But the good news is that it’s comprehendable to the non-professional. I was delighted with excellent concept presentations, examples, and well defined terminology.

In exchange for the effort of reading and re-reading - yes plowing through it — you are rewarded with the techniques of the pros. You’ll see options investing in a very different and profitable way.

You might consider investing your time an money in this book before plunging thousands of dollars into “investor education” which is marketed so aggressively today. Once you know the fundamentals that this book provides, you’ll be in a better position to assess the value of these other alternatives.

I can’t give this book enough praise.

Watch this 90 second video on how to trade the big moves in Gold using MarletClub Triangle Technology.