More Beginning Signs Of A Turnaround...

The small caps led a rally. Key levels of support were reestablished. Volume was significantly lower. The market closed lower for the week. Do you know how to confirm a reversal? Invest defensively until a decisive direction is established.. Click here to get today's free options advice; have A.J. explain option trading to you in everyday language.

Hey trading team,

This is A.J. on Sunday, October 16th with your Trading Trainer web log. We are your home of market insights for the serious options trader. This web log will cover the events in the market from this past Friday and last week as well as prepare you for watching the market tomorrow and the upcoming week.

We had a turn-around on Friday… perhaps. The broad market appreciated. The small caps dominated. But, what worries us is the light volume. Light volume is a clear and present sign that our institutional traders did not go along with the direction the market moved.

The most likely reason our minority of individual traders brought the market higher probably had to do with the consumer price index factoring out energy being flat – perhaps leading investors to believe that the fed’s interest rate hikes are working. Other reasons may include retail sales minus automobiles being solid and oil prices dropping.

But, here is how you have to think about it. A buy or a sell of a single share of stock is vote. The vote is tallied at the end of the day based on how many total votes came in that day. So, if 25 shares were sold and 75 shares were bought, then there was a higher ratio of shares bought out of the total shares moving – 75 out of 100 in our example – versus shares sold out of the total shares moving – which in our example was 25 out of 100. So in our example, the stock share price would most likely move up.

Here comes the interesting point, by sitting on the sidelines, neither buying or selling, you not only don’t vote, you reduce the number of shares that moved for the day. So, when an institutional trader sits a session out, the confidence we can have in the day’s outcome is not so high. Let me explain. Take our example. Our example had a majority of investors buying out of the total number of investors there was that day. Now, say an institutional trader was to have sold that day. And say they sold 100 shares. Now, with one persons vote, we have 125 shares out of 200 that were sold and 75 out of 200 shares that were bought. The tables were turned on the votes from a single institutional trader. In this second case, the share prices would have dropped. This team, is exactly why we don’t believe the market’s actions when volume is light. And why we believe high volume days are more credible.

My Techne January 55 Call closed flat at $3.20 per option. I’m 47% into my initial investment after 10 days.

Team, what is key right now is to watch if these beginning signals we are seeing of a broad market reversal are going to pan out. We should know one way or another by early next week. And, earning season will be getting well on it way.

I’m going to be taking a defensive approach for early this week. Just looking for signs to exit my long and or short positions. An offensive approach is better saved for a later date.

Okay, team. I'm done.

Till tomorrow, happy market watching, trading and money making. Trading Trainer is here helping you create your dream lifestyle.

Best regards always,
A.J.

Click on the below play button to hear the blog as an audio from A.J. himself!

Do you want to learn option trading? Full time options trader, A.J. Brown, reveals option trading secrets in his daily audio / video newsletter that are guaranteed to make you massive profits in less than 30 minutes a day. Visit TradingTrainer.com now.

~> You may reprint or distribute this article as long as you leave the content, the links and the resource box at the end intact. <~