Selected Trades & Market Commentary
Recent trades, or market analysis are in this section:
2/11/19: S&P Still In Danger?
What exactly is the danger point?
Just because today’s close was seven one-hundredths of a percent higher (+0.07%) than Friday’s session does not negate the potential for a reversal.
The chart insert is a close‑up of the S&P.
During today’s session, price action has essentially come to a standstill.
The danger point is a location on the chart where support or resistance has been penetrated with risk and volatility minimized.
S&P Meets Target, Now At Danger Point
The S&P has met its measured move target and is at the danger point.
It's not the top or bottom of a move. It’s the location of psychological extreme where both the bulls and the bears are in the greatest amount of pain.
Price action could go either way. In Wyckoff’s book from 1910, he talks about the “weight of a feather” could move the market up or down.
That is where the S&P stands at this point. Monday’s price action will tell us if the bulls remain in charge or if it’s time for a reversal and possible re-test of the December, 2018 lows.
SOX in Danger.
The weekly chart shows a clear spring to up‑thrust set up.
Note how little progress was made in the past week to make a new high. The index barely budged above the high posted from the previous week.
While all eyes are focused on the S&P, attempting to analyze every squiggle, other indices such as the SOX are showing a clear set-up.
There is of course no guarantee of a reversal from this point. The set-up only identifies the potential for a trend change.
H&S Pattern Reversal?
Can a massive Head and Shoulders pattern be negated? It’s happened before and the result was the 2007-2008 melt‑down.
Way back in October of ’02, the S&P was set to break below a well established neckline that had been constructed over a four year period.
A break would have resulted in a measured move decline of approximately 45%, putting the S&P down to around 1993 levels. The excess of the Internet bubble would have been (completely) cleared out and a new, sustainable bull market may have been the result.
Instead, and only years later was it hypothesized, at the precise moment of neckline breakdown, certain entities that have unlimited resources decided to force (or foment) a reversal of the trend. We know the ensuing result.
Now, we have the market apparently reversing (again) from a well established H&S neckline and well into the 50% retrace level.
Will the market move to new highs? More importantly, does it really matter?
Trading Method (Options)
Identify a set-up that has probability for a move lasting several days or weeks and potential for a significant gain.
Significant gain is anything over 1,000%
That might seem extreme but when trading options (correctly) a 10-bagger gain can be made in a few hours; such as what happens on the day of expiration.
While those opportunities do occur, they are infrequent and one has to be seriously on their game to interpret price action in real time.
One 10-bagger trade example, lasting a few (market) hours was this one.
Other opportunities that have longer time frames provide for a more sustainable (and more reliable) move. A good example is here.
Results presented on this site prove that with enough experience and focus, markets can be timed and timed effectively. Not only that, the method is modeled after techniques and insight developed by market masters during the early 1900’s.
Back then, as we're doing now, there are no indicators, no algorithms, no artificial intelligence; just real-time tape reading and discerning what the market is saying about itself.
With the public thoroughly conditioned to buy every dip in gold, upside trades on bearish reactions have a high probability.
We typically do not trade calls as there is quicker action to the downside (puts). However, this time it worked out.
3/4/18: Biotech put in February nets over 1,000% gain
The IBB Put option trade is a good example of why downside action is preferred.
While option calls may net a few hundred percent gain as in the GLD trade… puts are a different story altogether.
Using our near-expiration method, it’s one day to expiration for the 2/9, IBB 104.00 Put. All hope is lost with a contract price near zero at: 0.20.
Understanding where one is in a price move is critical. On February 8th, the down move in IBB does not appear to be finished. Price action over the prior two sessions rebounded modestly and appears to be in a stall.
Action moved sharply lower during the 8th and the early part of the 9th. Real time tape reading was used to determine that we’re at an extreme and the trade was exited (with over 1,000% profit) mid-session as shown.
No more than a few minutes later, IBB began an upward move that ultimately culminated in a 105.67, close for the session.
Had the IBB put been held into the close, it would have expired worthless.
Successfully trading options requires advanced skill in three areas:
Our strategy is simple but not easy:
Trade high probability market set-ups using near expiration put (or call) options.
At this point in time (post financial crisis 2008 - 2009) and in our view, this trading method is far superior to a fundamentals based or 'diversified' approach.
If one is 'diversified', then one has to admit they are unable to discern the technical, manipulative forces behind market moves.
The above statement is harsh but true and taken as a paraphrase from Gerald M. Loeb in his book, The Battle For Investment Survival.
As Wyckoff stated over a century ago, the market has its own energy and objective(s). Price action has little to do with fundamentals.
Wall St. has deluded the public into thinking fundamentals matter; in so doing it has been able to promulgate the deception for over 150 years.
Livermore stated as much during an interview with Wyckoff in 1921. He specifically used that word to describe Wall St.: "Deception".
If one is asking the wrong question (fundamentals), then one is going to get the wrong answer and be at least two levels (wrong question, wrong answer) removed from market reality.
Some are so deep in the fallacy, they spend a lifetime trying to figure out what the market 'should' be doing.
Entire industries such as financial planning, money management, radio and television market reporting, have been (either knowingly or unknowingly) built on and in support of the Wall St. deception.
Of course, the trading professionals are running their own game.
They use market earnings or news releases as an 'excuse' to drive prices to specific levels where they can enter or exit at low risk. Don't think that's true? Take a look at this.
At this stage (late in a fomented bull market), there is significant downside risk and very little upside commitment.
A market event of some type may be approaching from an unexpected source.
The options method detailed on this site takes into account (and intends to profit from) the possibility of another market breakdown and "no bid" that can happen at any moment.
The open area of this site posts the results of selected option trades and at times, other directional (ETF, futures, or equity) trades as well.
Suggested (required) Reading
The market approach, acumen and technical details presented on this site aren't much different than your senior or graduate level science courses in college. For you to get maximum benefit, you've got to know the material.
A good example of this was an experience I had years ago. I was an upper classmen engineering student at Texas A&M. I had made it through years of study and could just about see my way to graduation. That was until my Automatic Control Systems class.
It became clear at that point, I really didn't know much at all. There was still a long way to go. My visions of great accomplishment were dashed. All I had really managed to do, was survive the typical weed-out of lesser students.
Three Ten Trading, LLC is structured as a long-short fund implementing proprietary trading strategies. As such, we are not registered by the SEC, do not provide investment advice and do not engage in paid solicitation or advertising.
This site is for purpose of demonstrating the truth of market behavior; outlined by a market master: Richard D. Wyckoff in his text, Studies In Tape Reading, published 1910.
Charts produced by TC2000 which is a registered trademark of Worden Brothers, Inc., P.O. Box 1139 Wilmington, NC 28402.
Ph 800-776-4940 or 919-408-0542. www.Worden.com