Puts and Calls Total Volume and what it means to the next market trend

Ok, for those of you early birds for Tuesday morning, I have compiled some interesting charts on the Total Volume of Puts and Calls from January 2009 to the close of the market today. The first chart is of the total of all Puts and Calls. The second chart is of all the Calls only. And the 3rd chart is of all the Puts only for this time period. What is fascinating to me is that the overall drop in total volume seems to be more related to people buying less Calls, than Puts. If things are getting better in the economy and hence the market, which is supposed to be a leading indicator, wouldn't you expect there to be more purchases of Calls. That's not what the charts show. The average of the Puts and the range are much larger and wider than the Calls. It says to me that the real money is betting on a correction, not a major rally like we had in most of 2009. What do these charts say to you? Leave a comment. And don't forget to come back to see the Consumer Confidence data Update after they are released at 10:00am EST.

Tuesday June 8th stock market outlook

I have put together a 6 month chart of the Dow, including the latest "W" pattern trend and also posted the chart of my prediction of market direction on the 2 month chart. We will have small rallies in the market but they will only be opportunities to sell what you haven't yet or to buy Put Options to short this market. The trend is even obvious to the casual market follower. Nervousness has started to take over the main psychology and it will gain strength as many decide to abandon their least favorite stocks in this beginning phase.

I sold my MGM Put Options after a one day gain of 28%. I figured those don't come by that often. I will get a chance to buy them back at the price I bought them at on Friday which was $1.12. Selling at $1.40 in one day I couldn't pass up.

June 3rd Market Continual Updates.

It is not clear today which direction the market will go. The Intraday chart of the Dow above offers no clear clues as of 8:00am PST. I have readjusted my prediction of the Dow's high on this Bear Market rally. I do not believe we will get over 10,405 and the S&P 500 won't go over 1,116 based up upper resistance levels.

I sold my TZA Put Options a few minutes ago for $1.25/share. These I bought last week for $0.90/share. That's a 38.8% profit less less trading fees. At the same time I purchased TZA Call Options for $1.28/share for October Expiration at a Strike Price of $9.00/share. I still had some of these shares I had purchased for $0.58/share and had sold most of them at $1.90/share for a 286% profit. So being able to buy these back lower is indeed gratifying since it is my belief the market is going to go down dramatically in the future and I want to be on the right side of the market trend when it does.

Update 8:50am PST
As you can see from this Chart below, the trend is clearer, we are going to go below the "W" pattern. Notice slanted down "W" pattern.

Update: 11:00am PST

This is the latest update at 11:00am PST. You will observe from the chart below that indeed the market id go down into negative territory as the earlier update said it would. I have drawn red lines under 3 "W" patterns. The first one did slant lower and the chart shows it did go lower. The second one was slanted up and the market id go up as predicted, but the 3rd one is slanting down at this hour and foretells of the market dropping below currents levels to below the 2nd leg of the last "W" pattern. You can use this technique to trade on a more timely manner and know better where to set the Buy and Sell prices, if you can predict short term direction.

Update: 3:30pm PST
The market closed almost where it began today as indicated on the chart below. Of particular note was that my last prediction from the 3rd W pattern suggested we would go down form there which we obviously did not. So that was a failed prediction. That happens sometimes, as this is not science but an art form. Out of a dozen or more recent predictions, this was the only one which did not pan out as expected. It doesn't negate the validity of the theory however, but rather, helps show it is not foolproof.

I took the opportunity today to unload my TZA Puts which had an Oct. Expiration at a Strike Price of $6.00 for $1.28/share. These were purchased last week for $0.90/share. So I made a 39% profit on them before trading fees were included. I purchase more TZA Call Options today for Oct. Expiration with a Strike Price of $9.00 for $1.28/share. Remember I had bought these shares a few weeks ago for $0.58/share and sold most for $2.25/share. I was grateful to be able to repurchase those shares today for $1.28/share. I also still have some original shares from $0.58/share which hadn't been sold. And lastly, I purchased TZA Calls for January with a Strike Price of $12.00 today for $1.48/share. The thinking here was that the market will drop in the Fall months but may not be finished so buying some Options with a January expiration adds more insurance to my strategy.

May 28th market action going into long weekend (Final Update)

I have posted 2 charts going into Friday's market. Both are of the Dow and are of 2 month durations. I have drawn a Blue line to show you how I came up with a top of this latest rally at 10,500 to 10,600. One chart is of Candlestick patterns and as you can see now the close on WEdnesday was a reversal Hammer pattern indicating today should go up, which it did mightily gaining 284 points to close at 10,258. Investors may take some profit on Friday as we go into the long Memorial day weekend. But I do not see giving back all the gains made today. We only have about another 250 points before we head down again.

My TZA Puts gained today. I bought many of these two days ago for $0.90 each and today the Bid closed at $1.15 and the Ask at $1.25. Some shares sold today for $1.21, which is a paper gain of 34%.

When I sell these as we approach the comparable high for the Russell 2000, which should be around 680-700, I will also buy TZA Calls again. They should be cheaper than my last sale price of $2.25 each. Today they closed at $1.30 with a Bid at $1.15 and an Ask of $1.28. So they have dropped already to a reasonable level to buy them again, as this was a 42% drop.

The last chart I am posting below is the one I posted back last Friday when I said the market was going to drop and the pattern which was to develop. This should now close that prediction.

UPDATE: 6:00am PST.

Personal Income rose 0.4%, according to data released this morning. That is good news. The bad news is that Personal Spending dropped to 0.0%. The Consumer is saving their money, not spending it. This is confirmed by the Savings rate data which was at 3.6%. Futures point up this morning but it is going to be a back and forth struggle for this market going into the Memorial Day weekend.

Art Cashin of UBS Warburg stated on CNBC confirmed my prediction that the market is forming the right Shoulder of a Head and Shoulder pattern or what I have called the "W" pattern. He expects that if the market can hold most of yesterday's gains that in the next week or two we will go up. He too believes that we will not go back up to the highs, so my forecast of Dow 10.500-10,600 range might in fact be his thinking too. Stay tuned!

UPDATE: 6:55am PST
Data out on Chicago PMI (Purchasing Managers Index) for May was at 59.7 versus 63.8 in April. This is another piece of negative data. Dow, S&P 500 and Nasdaq are negative now. The University of Michigan Consumer Confidence went up to 73.6 in May from 72.2 in April .

UPDATE: 11:00am PST
I have posted below the Intraday chart of the Dow and have drawn Red lines to show the trend expected after each "W" pattern. The first "W" pattern, while going up initially after the "W" did finally come to a lower level. The signal now is a rise in the trend even though the Dow has gone lower at this point. Hopefully there will be a little rally to stop it from going much lower than down 150 points. The Vix has also gone up over 11% so far today to 33.30 as the market hits the ows of the day.

UPDATE: 1:20 pm PST
The market has closed and I have added the final Intraday chart of the Dow below, to prove my methods to you. Notice that even after the last Update above, it looked as though we were going lower than the 150 point drop, that I said the "W" pattern had pointed up and that we would go up. Well we did. As a matter of fact, even the folks on CNBC thought we might actually go up at the end of the day, until the market sold off again. But, it you were trading today, interpreting charts can give you the edge and, as I have shown, it is not difficult if I can do it.

Update: TZA trade

Today I purchased the Oct. Expiration Put at a Strike Price of $6.00 for $1.12 average price. That was the same price as the closing price on Friday. I may add to my position if the market drops again tomorrow and I will try to get more cheaper, hopefully at $1.08.

I plan to sell these when the Dow returns to 10,600 more or less. I still retain 1/2 of my Call Options for Oct. expiration. They went up in price today.

If you look at the Intraday chart of the Dow below, you can see just before the final drop, a "W pattern formed with a slant to the downside. You can also see where I underlined the first "W" pattern and that the slope pointed up. That is why the Dow went up and then after the second "W" pattern went down near the close. Tomorrow is another day.


The VIX closed at 38.32, down 4.4% after being as low as 35.57, or down 9% today. So if the VIX is an indicator of tomorrow, the market should go up tomorrow. Increased Volatility would suggest a more pronounced drop, but I am betting that we will have a short relief rally over any spec of good news. Watch for it on the TV shows. They like to attribute something to when the market goes up, even if they are pulling stories with a positive spin out of their butt.