- 09
- Oct
Free Stock Market Research Report by Jason Ng, the man behind The Star Trading System (one of the best option trading systems)
The massacre in the stock market continued yesterday as more investors and options traders perished while the Star Trading System kept us safe and sound, out of this mess. Some of you asked me, shouldn’t the Star Trading System be able to predict and take advantage of this decline? The answer is Yes. If you look at the signals produced over the past few weeks, they are all BEARISH STARS! The only problem is that options spreads are much wider than normal due to the high volatility, failing options selection most of the time. If you had just shorted the stocks (which you cannot do for most stocks right now), you would still have profited. That’s the thing about options trading. Its never just about the stock, its about the options as well and both must work for options trading to work.
Yes, that’s the headline all over the world and one which I would also like to use today.
The Dow took a hit today, which could have ended up a lot worse, breaking the critical 10,000 points psychological support level, triggering automatic sell-offs all over the world. Investors were in all out panic today as they rush into safe haven investments such as Gold and Bonds. Bond yields dropped across the board significantly due to this sudden entry (see bond yield curve). Fear of a global recession have caused major markets all over the world to drop prior to the opening of the US market today, creating the extremely pessimistic opening we saw today. Options traders also rushed full force into put options as total equities put call ratio hit a high of 1.51.
In fact, here’s a quote from a major news wire to demonstrate how out of control the US economy seems; "Some top economists seemed at a loss for ways to stop the downward spiral.".
What does all these sound to me? More Capitulation! 
For one, the put call ratio hitting above 1.5 tells me that panic has been overdone. Since 2004, out of the 8 times the put call ratio have hit above 1.5, 4 times have the Dow rebound significantly within 2 weeks and only 2 times did it go lower and once did it go sideways. So, the odds remain favorable that this might be a capitulation which will stop this persistent decline. In fact, there are trading systems out there programmed to enter at such levels and might be why the Dow actually rebounded significantly near the end of the day. All 3 major indices also formed significant hammer candlestick signals. Hammers signals, occurring after a big and sustained decline usually spell a reversal if confirmed over the next few days. A couple of classic examples are the hammer signals on 22 Jan 2008 and 16 Aug 2007, both leading to significant gains.
Capitulation is now everywhere and is certainly time for shrewd investors to look for good mid to long term opportunities or to simply start a gradual long program on an ETF tracking the major indices.
Star Option Trader’s Thought For The Day : "Always Follow The System."
