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Run For Cover

Welcome to your new job, Ms. Yellen! Hardly the best way to start your first day on the job, with Mr. Market dropping like a rock. With all hubris aside, it is comforting to know that the investment strategy(s) I have been extolling for the past 5 years - Deep-In-The-Money COVERed Calls, and more recently, LEAP Strangles (buying an inexpensive stock and selling 2016 OTM puts and calls) are doing splendidly in this environment.

With the DJIA down over 1200 points so far in 2014 (SPX down over 100), a report card of my 27 fully invested positions show 8 DITM positions, only one Under Water; of the 19 Leaps, 7 are still in the call-away area (max profit), 9 in the sweet spot, between the put and call strangle, and only 3 precious metal stocks Under Water, with 2016 as the expiry date.

Hopefully today's down day was a technical Selling Climax, as, by one measure, NYSE Volume was 11% higher than average, with down volume ($DVOL) 20:1 over up. Support Trend Lines (previous buying and selling levels) and moving averages (200-day) were broken today, but to avoid shakeouts, it is wise to see a filter of at least three daily closes below these lines. Hard to believe that just two decades ago, 1994, the DJIA closed below 4,000, rising over 4 times that before correcting. Last week the monthly numbers for ETF participation came out, with only equities rising to over $1T ; also monthly was the record margin interest of $445B - a Sentiment Indicator that I record weekly in:

On the positive side, the AAII Bears per cent (literally per hundred) overtook the Bulls slightly last week, although the wire house newsletters skew to Bullish complacency.

Finally, the VIX level is about the same as previous spikes since June of 2012's Head & Shoulders pattern.

Technicians sometimes watch the January Barometer for direction, as it has worked 89% of the time since 1950 - as January goes, so goes the year (up or down). Not a good sign. One reason for this is the Heisenberg principle, that the month is included in the year, helping the result. Another is the Super Bowl indicator, although both teams this year started in the AFC (?). Probably the best indicator is to short the companies that advertised in the event (autos, food & beverage), much like ones that affix their name to stadia.


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Saturday, Feb 8, 2014 from 1:00 - 4:00pm


Juniper Networks, Building 3
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Pacific Conference Room,


Active Trend Trading System
by Dennis Wilborn