Greece + Jobs Report = New Support Area

Feb 28 

Dear Friends and Fellow Traders, 

Greece will be bailed out by someone. Rumors had a German bank loaning Greece funds. The markets rallied on the rumor. Most economic news wasn't very good and the markets sold off nearly 25 S&P points before the Thursday reversal. I continue to maintain we are in a trading range. NET traders buy the dips and sell the rips. 

Trade of the week review:

Thursday had the market gapping down almost 20 points at the opening.  The jobless news was a rather disappointing and Greece was shut down by union strikes. The market gapped down through a large support area from Tuesday's low at 1090. Now support becomes resistance at the 1090-1092 area. All longs got stopped out on the break of Tuesday's low while the breakout traders pile-in on the short side. This is the perfect setup if someone is looking for a nice contra-trend long buy. Why? Because everyone is positioned on the wrong side. The longs are out and the shorts are in. This support level sits at a rather large 60/40 commonality buy zone coupled with the 20 DMA and only 4-5 points away from the mid-February breakout level from the January correction lows. This is the trap "They" use to move the markets in the desired expiration direction to inflict Max-Pain on option buyers. Additionally, this support level needs a lot more than Thursday’s negative news to blow this buy level out. 

Early Thursday morning before 10:30 AM I sent out an Alert Email to buy calls in the 1080-1085 area and scale-in more lower into 1080ish.  The Adv/Dec opened at 1/10 (1 to 10) negative but at oversold extremes. This expected rally wasn't going to be a "V" reversal anytime soon. I recommended subscribers use the ITM 500W calls then trading at $2.00 then trading at $3.50. A subsequent low price of $2.10 was reached near 12:00 noon and was noted on the "A" chart, close enough for Government work. I noted NET traders must hedge because the trade would take time to unfold and, according to the NET methodology, the hedges would take a large part of the cost and risk out of the long call. 

In addition to the large Fibonacci support (20 DMA) area we had great Oscillator divergence on the 30" chart and an Oscillator crossover with divergence on the 5" chart as well. However, there was one more important item most traders are not aware of.

We have regular Monthly and Quarterly Portfolio Manager (PM) Markups.  The majority of their trades are long. (NET Portfolio Markup training comprises quite a few pages The Definitive Trading Bible.) Since the markets sold-off hard into the February lows PMs would like to see their stocks higher to gain a performance advantage over their completion. 

The market should begin to be marked-up starting either sometime later Thursday or lastly early Friday, the last day of February. An early clue emerged after 1:00 PM Time of Day (TOD). Price should have been at the lowest low near 2:00 PM in a sharply down day and could only retrace 40% back down from the day’s high. Higher prices coming - look out above!  Price exploded through resistance at the 1090 area just before 2:00 PM with a great Opening Range Breakout (ORBO). Now all the shorts are scrambling to exit while the longs are getting back in. This combo buying power is explosive. The trading trap was sprung. After the rally was well under way, I sent another Alert Email to scale-out the calls into strength. These calls near closed at $6.00 on Thursday, reached a high at $7.20 on Friday and was good for a 3X trade! Here’s the trade on Thursday’s NET Money Chart 2010-02-26. 

There were four more Alert Emails throughout Friday with an early call buy and a late put/hedge trade. Both trades were nicely profitable.