1 2 3 Gift

There
is certainly lots going on with
the dynamics of this time period. We had an aggressive low of 944.75
for the S&P 500 ($SPX.X),
right on the minor cycle date of 9/21. Before I left, we talked about
the different cycles that come together on 9/27 and 9/28. You have the
nine-month cycle, which has been a good intermediate flag over time
and you also have the 64-week, 9-week and 7-week cycles (Source: Wall
Street Courier). There was also a Fib pivot date on 9/25, which
was the big rally day this week.

The indicators are extremely oversold and the price of the major
averages got out to the third standard deviation band. We certainly
know the reason for this acceleration from bear market oversold to
panic oversold, but you can’t control that — and don’t have to if you
are a daytrader or taking long-term positions in certain stocks. Yes,
you heard me right.

Yesterday, the
NYSE traded 1.5 billion shares, with a volume ratio of 63 and breadth
positive at +752. This was in contrast to a volume ratio of 29 for the
Nasdaq. I read in the paper where 15% of the Nasdaq stocks were
trading under $1. Of course they are now talking about relaxing the
listing requirements. It’s all about the money or the oil. Going
public anytime soon, Exchange? Doubt it.

Will there be
another tech cycle? Of course there will be. What would you buy? My
answer is Semiconductor stock with minimal debt and good financial
ratios relative to the industry that will be around for the next
cycle. Which will happen. If you are really a long-term investor, the
time is now in certain stocks. Real example is a stock that fits those
requirements bought at 8.35 and sold LEAP puts and calls against it,
for a net cost of 4.5. And if put the stock at 7.5, it means a cost of
6 on the entire position.

And then you
might do it again if that happens. Worst case is you own it at 6 which
is a 28% discount from the 8.35 entry price. If you got called away
from the LEAPs, the return is about 120% for 15 months. If it stays
the same, the return is about 46%. Or in other words, saying that is
subtracting premium from 8.35, your cost is 4.5.

There are some
that would say why not just buy the stock because it’s the price of a
long-term LEAP call with no expiration? You could do that but not me.
I would rather buy it at worst-case at 6 at 28% discount, and have a
chance to make money if it does nothing, and over 120% worst case over
15 months. How many money managers have done that? I don’t have to
give the name but you can figure it out.

I have included
a chart of yesterday’s trading gift we received in the afternoon. It
was a 1,2,3 lower low on the NDX 100, which is called Shake and Bake
for those of you that attended my seminar or have bought the video. It
was at the 1.5 Volatility Band and to top it off we got a Slim Jim
pattern breakout that took the NDX 100 above its 8-period moving
average of the high with a positive divergence in the 8,3,3 slow
Stochastic. The Qs actually made a Double Bottom at 27.42 vs. a 27.36
1.5 Volatility Band.

It is also
significant to note that the SPX and DIAs had the same pattern. It was
also a positive divergence of NYSE Ticks that preceded entry. You can
see this below. I had six emails from those that said, "What a
no-brainer. Did you take it?" I am happy to see that part of the
video seminar was understood.

Stocks
Today

I have been in
and out the past two weeks, so I have stayed with the (QQQ)s,
the SPYs, DIAs and HOLDRs. Yesterday’s rally left some
top-of-the-range closes in all of them. The BBHs gave us a
wide-range-bar move right to the 20-period EMA. Below 111.25 is a
1,2,3 short on your five-minute chart. Don’t chase upside unless you
get a pullback.

Semis like (KLAC)
and (NVLS)
set up the same way in closing range triangles on your five-minute
charts will be resolved either way today. I see early green so don’t
buy any gap openings, only pullback setups. I will be back in stocks
on Monday.

On the short
side, take the 1,2,3 setups on the five-minute charts if it happens
that way. Be flat at night.