New trade opened today.

We look for things that are obvious, without listening to all the talking heads. It’s so easy to be distracted by the noise on the TV and in the financial press, and you can miss things that are staring you right in the face. Today was a nasty day with the DOW down 1.6% and the NASDAQ down double that, or 3.1%. It would seem that the train has come off the tracks.

However, when we look at the relative strength of the Select Sector SPDR’s, we see an interesting dichotomy. Outside of the XLU, which has the best relative strength due to the selling (and the flip-side buying of yield) we notice a different picture. The XLB (materials) and the XLI (industrials) now occupy positions 2 and 3. To that you add today’s job news (which was good) and an improving Europe, and you have to wonder why raw materials and companies that make big things are doing so well.

At Deep Pocket Options, we wonder, but we don’t necessarily try to answer the question, “Why?”. We can’t possibly know that. But we do know that the charts just don’t lie. People in the financial media can be wrong for many reasons, often self-serving, but the truth is in the numbers.

Trading with the charts works every time, but maybe not every day or every week. It takes a lot of long term money flow to move the XLB and the XLI to the top, so we don’t analyze the reasons behind it, we just go with it. We already have a position in the XLI, now today, we opened a new position in the XLB.

We start small, and build it over time. Subscribers get the exact details of how that’s accomplished, so please think about joining us at the $20 a month level. You will be able to trade along with us. We will keep the XLB trade string updated here as it evolves.

On our other positions, today was a down day. The DIA was down 1.6%, we were down less than that, but still over 1% for the day. That’s definitely not a good day, but we understand that a lot of that is due to increased volatility, which will not stay elevated for long. Things continue to improve worldwide, although China now has some confusing data. Don’t forget, China is a centralized command economy with a whole lot of dollars. They can make sudden moves to turn the ship, at least in the short run. The rise in the XLB and XLI has to be coming from somewhere and we will eventually understand why that is happening.

For now, we go with the charts and realize that the increased volatility creates great opportunities for option sellers, as the prices are greatly inflated.

A quick update on the WalMart trade — Today, we closed with the position down $370 for the year. At the open today, we were only down $188. This result is what we typically see when volatility spikes and the prices of our short options jump up. It would cost us a lot more to buy them back, if we had to that TODAY. We don’t. We keep the trade moving along. The upside of the equation is that our daily time decay (Theta) is now almost $31 a day. This trade is working well.

Stay Optioned, My Friend!


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