Market Update

The un-surprising bounce has been building since the lunch hour. Will the hungry bears come in and swoop up the bulls lunch like they did on Friday? 45 minutes to go so we will see how the bulls and bears get along. One must ALWAYS look at a bounce with caution. Traps being placed for the bulls is a common practice following a large market drop. They let the markets price up a bit and then catch them in the traps and take their money. When the market gets very nervous and the fear of a larger decline is looming over everyone then the smart money will take advantage of any bull feeding frenzy and find a way to take it away from them.

Never let an up day following a large decline entice you into thinking all is OK with the world again. That is exactly what the bears (smart money) want you to think. In order for the market to show real signs of health there must be a sequence of up periods and a break over resistance levels. We started out this morning sitting on top of support regions and over head is resistance again from where we came from. I need you to think of support and resistance like this..

Think of the market as a person on the 4th floor of a building. The floor the person is standing on is support. The floor develops a hole and the person falls through the floor down to the 3rd floor. That 3rd floor is now support and the ceiling where the person just fell through is now resistance to get back to the 4th floor. This is a very simplistic way of describing how resistance and support works but it is an accurate analogy to use in picturing in your mind what support and resistance is.

Last Thursday and Friday our 'market guy' fell from the 4th floor all the way down to the 1st floor. Right now the market is trying to get back to the 2nd floor. If it falls off the ladder trying to get back to the 2nd floor it may just make a hole in the floor and fall down into the basement!

The CBOE put/call options ratio is peaking today with options players betting on the market going down. More puts are being placed than calls. Are they right? Can't say. But they are hedging themselves for what would happen if the market falls into the basement.