NEWSLETTERS & RECOMMENDATIONS - October 9, 2011

Dear Friends and Fellow Traders,

So far the October low sets up a perfect seasonal tendency to rally strongly into the 4th quarter after maybe a few fits and starts. If we clear our current "red zone" resistance between 1175 and 1195 we can rally back toward 1260 or the top of my earlier trading range.

Heading into 3rd quarter earnings investors are faced with a lot of contradictions. Most corporate executives I read are downright bullish compared with the market gloom out there. Insiders have started to buy on balance however we don't have an all clear signal just yet. Analysts on the other hand are busy knocking numbers down rather hard for the balance of 2011 and next year. Friday's jobs numbers doesn't support such bearishness. Any good quarterly earnings surprises or favorable outlooks could be just the spark needed to take the markets higher.

Until then I expect our trader’s dream market will continue. We have reasonably valued stock prices against a backdrop of a European banking crisis. It's no longer just a Greek problem. This puts the global economy at some risk. Merkozys are meeting Sunday to discuss efforts to prevent a Greek default. It would seem the news is getting some positive traction now. Besides our banks are in great financial shape to carry on not like 2008 at all.

Trades of the Week in Review
Last week the market retested the August 8th overnight lows with lots of divergences, especially no increase in the number of new lows over the last time. I started Thursday early with an Alert Email to buy puts but you must hedge given the upward bias. I just love the defined risk of the put against the opened-ended up move of the long indexes. We began to buy the 115W strike puts near $0.85. I averaged down double the number of puts every $0.13-.14 into the close near $0.40 – for example: 5, 10, 20 and 40. We had 5-7 hedged trades after the morning Alert Email. If a NET trader just did 2 long E-minis trades per 10 long puts they made over $6,000 profit per $550 average put cost!

The best was yet to come. I noted on Thursday’s "B" chart emailed at 2:00 that the "whisper" jobs number was being raised throughout the day. GS started to lower the number Monday during the sell-off to below 50,000. By Thursday afternoon I heard numbers nearing 100,000. That meant a positive surprise. I send another Alert Email telling all to hold all your puts overnight and hedge with long E-minis into any overnight weakness. See attached Thursday’s C chart, NET Chart 2011-09-06 C.

I thought there was extremely low risk down. We had put protection but to get long for the possible upside surprise. Near 7:30 Friday morning we had a retest of the overnight low of 1152.50. This was a perfect place to get long. We owned the 115 puts which were now ATM. We could have bought between 3-4 E-minis with this setup not the usual 2. There was also strong support at Thursday’s upside breakout from the 1146-8 area so we were only risking about $75-100 per E-mini long contract if I was wrong.

On the upside, I expected a 10-20 point rally from 1152. If I was right that's as much as $3,000-4,000 profit per $130 worth of long puts. We hold 2.5 puts for each E-mini long. (I hope to have an educational trading video on Thursday and Thu-Fri overnight trade). At 8:30 Friday the jobs number showed non-government jobs grew 103,000. The S&P's popped immediately to 1173.75 right into the bottom of our Red Zone Resistance (per an earlier Alert Email Thursday afternoon). I immediately sent an Alert Email a few minutes later to sell all hedges and close the puts out into expected profit taking. I was gone at $0.15. Later in the day I believe these puts hit $0.47.

Friday morning the market never reached the overnight highs where I had hoped to recommend buying puts. After the market was open for awhile I sent another Alert Email that I was going long the 117 puts. These hit a low of $0.42 shortly afterwards. I did mention I thought the range might be too narrow but we could hedge again. I was wrong on a low-priced call recommendation for non-hedgers there. These calls expired worthless.

I did send another Alert Email confirming the strong support near 1146-48. I was looking to sell puts but just maybe we could look at the 116 calls under $0.50. I started scaling out of the puts over $1.75. These hit a high awhile later at $1.93. The market bottomed out just under our 1146-48 support area. The 116 calls hit $0.08 but I never bought them. The calls on a late rally back to the day's highs reached a high near $1.00 before falling back. The calls expired worthless on the more than 10 point closing decline. See attached Friday’s C chart, NET Weekly Money Chart 2011-10-07.

Keep those cards and letters coming. I read them all.

Good trading,

Stan Moore
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