NOT LIKING THE LOOKS OF THE MARKET

Got to admit, now that the panic has left the market, I am not comfortable with how it is heading. By that I mean that the market has come back up for the past three days, but trading volume has declined. What a trader wants to see is a rise in price with a rise in trading volume (or a decline in price while trading volume is declining). Another problem I have is that the MACD histogram was getting smaller and smaller for the past 3 months (see attached chart of SPY) denoting a consolidation phase. Since the markets broke to the downside, I personally believe that we are in for a correction. The indices I am looking at is SPY, DJIA and the QQQQ. Type those into www.stockcharts.com and you will see what I mean.

The best thing to do at the current moment is to get into cash. That means - sell your stock. If you are into options trading, the best thing to do is start playing bearish trades such as a calendar put spread since volatility is so high right now in the near month expiration.

Personally, I am bearish now and am going sell my stock in my retirement accounts and play the short side with my personal money. Of course, with any market there are caveats. CME has bounced back above its 50 day moving average on higher than average trading volume. I personally don't have the $$ to invest right now. AGR might sneak back down to its 50 day moving average and move higher. LHCG has also held up well and has sat around some support. Again, if RVSN breaks $23.30, go in.

MCO appears to be spitting out a bear flag. I'm gonna short it if it breaks down below $64.00.

This next bit of text is for me personally or for any advanced trader that can follow the jargon:

I am trying a new technique with options that center around earnings announcements that was described in aMarch,2007 options magazine that I get. Basically, I take a short-term calendar spread around the day of earnings announcement. Since it is hard to determine direction, I am going to play a double calendar spread around the day of earnings. Trade set up is like this:

1st leg: STO near month OTM call, BTO one month out same-strike call.

2nd leg: STO near month OTM put, BTO one month out same strike put.

Other rules:

1. EPS release within 3 days since volatility is the highest in the near month option.

2. Volatility skew must be greater than 20% (near month versus far month).

3. Don't pay more that $1.50 for both legs together.

4. Use only a one month spread.

5. Even more desirable if far month delta is higher than near month.

Let's see how this works. Today, I bought CMTL calendar call spreads only since my directional bias after EPS releases was up. Bought 50 calendar call spreads at strike of $40 for a debit of $0.25. After placing the trade, I realized I should have also put on the second leg. Oh, well. Let's just see what happens. But first, why I bought:

1. overall CMTL has done well and risen after each EPS release

2. volatility skew as 67%

3. Delta for Mar 40 call was 0.07 and for Apr 40 it was 0.14.

Good luck trading.

JD