NEWSLETTERS & RECOMMENDATIONS - November 06, 2011

Dear Friends & Fellow Traders,

The G-20 talks fail to ease the crisis but the shaky Greek bailout plan appears back on track. It's alive! Our economy is still muddling through. Germany's manufacturing numbers fell off the page so the new ECB head cut rates. Every little bit helps. The market will continue to trade news to news with an outside chance we have a new and higher trading range from say 1195-1300. We can handle that.

All I can add to this lunacy is to quote David Letterman referring to Obama giving Europe advice on its debt crisis."That's like J.Lo getting marriage advice from Kim Kardashian." I can't top that one.

The real winners in the crisis appear to be Russia and China. While we were out there pissing away billions of dollars on two wars or what have you. Meanwhile both Russia and China were picking off prime assets, like energy supplies across the global or building new friends in faraway places.

China was loaning money across the globe for whatever project another country needed thus creating IOUs to be called in later I'm sure. I was also thinking that if the Chinese helped Europe, especially France, we might find the Mona Lisa, the Notre Dame Cathedral or even the Eiffel Tower moved to China. You get the idea. Just remember what happened to Japan back in the late 1980s. That didn't end well for them either.

So what's the trade? Greece should be handled. That leaves Italy.

If Italy continues to screw up and the "Big Gun" Hank Paulson, our former Treasury Secretary, talked about during our crisis is not available from the European financial institutions then down the road Europe could break up into north and south unions. However, the mostly likely choice will be a massive ECB bond purchase program. Duh! Europe will choose the later. So that makes selling the Euro against the dollar and gold a great buy in my opinion.

Trade of the Week in Review
Trading options has now come full circle and I love it. When I wrote Option Magic nearly 20 years ago our trading life was rather simple. I used simple fixed (steady parallels) moving average envelopes because unlike Bollinger Bands which expand and contract and tell me little. I knew moving averages worked because price never went straight up or down for extended periods of time. Price always reverted to a mean or returned to some midpoint after moving away from its midpoint.

Then the question became how far is far? After considerable testing I found that 3 large Fibonacci numbers worked better over time. They were 1.4, 2.3 and lastly 3.7. I started with lower numbers and had limited success. After 1987 I found there were a few occasions that price reached the 6.0 Fib limit. Overall price hit the outer 6.0 bands happened 11 times down with the majority of times in October but only 2 times up and, right now, I don’t recall the upper hits.

I noted two definite high-probability strategies: 1) the 3.7 bands contained price over 99.9% of the time since 1987 and 2) I needed price to retest the lows on the bands with some sort oscillator divergence needed as well. Later I found that price at extremes near the 6.0 bands with extreme tick divergence and a VIX reading over 45 pretty much nailed major bottoms until March of 2009 when the VIX reached over 80!

Today we have even more help finding the turning points along the bands. I refined the Oscillator to give us a new divergence called “leading divergence" as opposed to any simple divergence in the past. These setups give us trades with over 80% probability of success on a 30 minute chart.

In the past this price-at-extreme-band strategy setup gave us 3-5 good trades a month using monthly option expirations. We bought the extreme bands and set a 50% option loss stop. If the option moved up at least $2.00 we moved the stop to breakeven. We took 50% profits at the mid-Uni band and expected to sell the rest at the same number band in the opposite direction. Averages winners were over 3X over 70% of the time. Losers were less than $1.00 per option. There are a substantial number of these trades from the Historical Charts available in the New Era Trader web site.

It didn't take long to revert back to band trading once I turned to trading the weekly SPY options. Before, volume was only sufficient to trade the weekly OEX options on Thursday and Fridays. Now we can trade the SPY weekly any day, any time. These ATM weekly options trade over 40,000 early in the week and near 100,000 on Thursday and Friday.

In addition, the profits are now much larger with smaller risk given the lower prices. We no longer sell half the options at the mid-Uni anymore and leave sometimes half again as much profit on the table like before. Furthermore, we can ton money like never before with E-mini or SPY index hedges. There were at least 20 hedge trades possible the next 4 days after the Alert Email to buy calls Tuesday morning was issued at the 3.7 Uni bands and the daily chart 20 DMA. Also note the Oscillator’s "Leading Divergence" too.

The hedges could have earned as much as $5,000-10,000 for every 10 SPY $0.83 calls, an $830 investment. The calls themselves were scaled-out per Thursday’s Alert Email into strength before Friday’s jobs number. I wrote on the 3:45 Thursday C chart to hold a small position overnight. We started selling the calls over $2.20 and as high as $2.68 for a 3X return! I continued to hedge Friday before selling the last calls near $1.70. These same 124 calls hit $0.57 at the Friday morning lows. That's another possible triple! Sorry, that good I'm not. See attached Friday Final "D" chart, NET Weekly Money Chart 2011-11-04, for band trading and leading divergence too.

Keep those cards and letters coming.

Good trading,

Stan Moore
702.558.1814

---

Again It's Buy the Rumor & Sell the News

Dear Friends & Fellow Traders,

The G-20 talks fail to ease the crisis but the shaky Greek bailout plan appears back on track. It's alive! Our economy is still muddling through. Germany's manufacturing numbers fell off the page so the new ECB head cut rates. Every little bit helps. The market will continue to trade news to news with an outside chance we have a new and higher trading range from say 1195-1300. We can handle that.

All I can add to this lunacy is to quote David Letterman referring to Obama giving Europe advice on its debt crisis."That's like J.Lo getting marriage advice from Kim Kardashian." I can't top that one.

The real winners in the crisis appear to be Russia and China. While we were out there pissing away billions of dollars on two wars or what have you. Meanwhile both Russia and China were picking off prime assets, like energy supplies across the global or building new friends in faraway places.

China was loaning money across the globe for whatever project another country needed thus creating IOUs to be called in later I'm sure. I was also thinking that if the Chinese helped Europe, especially France, we might find the Mona Lisa, the Notre Dame Cathedral or even the Eiffel Tower moved to China. You get the idea. Just remember what happened to Japan back in the late 1980s. That didn't end well for them either.

So what's the trade? Greece should be handled. That leaves Italy.

If Italy continues to screw up and the "Big Gun" Hank Paulson, our former Treasury Secretary, talked about during our crisis is not available from the European financial institutions then down the road Europe could break up into north and south unions. However, the mostly likely choice will be a massive ECB bond purchase program. Duh! Europe will choose the later. So that makes selling the Euro against the dollar and gold a great buy in my opinion.

Trade of the Week in Review

Trading options has now come full circle and I love it. When I wrote Option Magic nearly 20 years ago our trading life was rather simple. I used simple fixed (steady parallels) moving average envelopes because unlike Bollinger Bands which expand and contract and tell me little. I knew moving averages worked because price never went straight up or down for extended periods of time. Price always reverted to a mean or returned to some midpoint after moving away from its midpoint.

Then the question became how far is far? After considerable testing I found that 3 large Fibonacci numbers worked better over time. They were 1.4, 2.3 and lastly 3.7. I started with lower numbers and had limited success. After 1987 I found there were a few occasions that price reached the 6.0 Fib limit. Overall price hit the outer 6.0 bands happened 11 times down with the majority of times in October but only 2 times up and, right now, I don’t recall the upper hits.

I noted two definite high-probability strategies: 1) the 3.7 bands contained price over 99.9% of the time since 1987 and 2) I needed price to retest the lows on the bands with some sort oscillator divergence needed as well. Later I found that price at extremes near the 6.0 bands with extreme tick divergence and a VIX reading over 45 pretty much nailed major bottoms until March of 2009 when the VIX reached over 80!

Today we have even more help finding the turning points along the bands. I refined the Oscillator to give us a new divergence called “leading divergence" as opposed to any simple divergence in the past. These setups give us trades with over 80% probability of success on a 30 minute chart.

In the past this price-at-extreme-band strategy setup gave us 3-5 good trades a month using monthly option expirations. We bought the extreme bands and set a 50% option loss stop. If the option moved up at least $2.00 we moved the stop to breakeven. We took 50% profits at the mid-Uni band and expected to sell the rest at the same number band in the opposite direction. Averages winners were over 3X over 70% of the time. Losers were less than $1.00 per option. There are a substantial number of these trades from the historical charts available in the New Era Trader web site.

It didn't take long to revert back to band trading once I turned to trading the weekly SPY options. Before, volume was only sufficient to trade the weekly OEX options on Thursday and Fridays. Now we can trade the SPY weekly any day, any time. These ATM weekly options trade over 40,000 early in the week and near 100,000 on Thursday and Friday.

In addition, the profits are now much larger with smaller risk given the lower prices. We no longer sell half the options at the mid-Uni anymore and leave sometimes half again as much profit on the table like before. Furthermore, we can ton money like never before with E-mini or SPY index hedges. There were at least 20 hedge trades possible the next 4 days after the Alert Email to buy calls Tuesday morning was issued at the 3.7 Uni bands and the daily chart 20 DMA. Also note the Oscillator’s "Leading Divergence" too.

The hedges could have earned as much as $5,000-10,000 for every 10 SPY $0.83 calls, an $830 investment. The calls themselves were scaled-out per Thursday’s Alert Email into strength before Friday’s jobs number. I wrote on the 3:45 Thursday C chart to hold a small position overnight. We started selling the calls over $2.20 and as high as $2.68 for a 3X return! I continued to hedge Friday before selling the last calls near $1.70. These same 124 calls hit $0.57 at the Friday morning lows. That's another possible triple! Sorry, that good I'm not. See attached Friday Final "D" chart, NET Weekly Money Chart 2011-11-04, for band trading and leading divergence too.

Keep those cards and letters coming.

Good Trading,

Stan Moore

702.558.1814

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