FUNDAMENTALS
Markets closed mixed after spending most of the day deep under water. The early drop in oil prices caused an immediate ditching reaction in the sensitive energy sector bringing the markets down hard. However, as oil prices recovered later in the day to close up by another 1.5%, the energy sector rebounded, lifting the Dow to close up 0.24% for the day. It sure looks like crude oil price, whose ditch supported the recent rally, needs to remain strong in order to boost the energy sector and consequently, the market. PPI numbers will rise with rising oil prices and that could give rise to renewed inflationary fears. Crude oil closed $63.15 per barrel with Exxon Mobil up another 2.1% to close at $77.06. From the recent market actions, it now seems like the only sector left that could still move is the energy sector. The rest of the market seems almost powerless to give lift to the markets. However, if the energy sector continues to rise on rising oil price, the rest of the markets will very soon come to yield under rising inflationary pressure. Unless the markets see some new strength and reason for optimism across the board very soon, there could only be one direction left for it soon.
 
TECHNICALS
Markets closed sideways yesterday after a scary opening. NASDAQ is the focus of attention here today. NASDAQ has rallied on its 30 SMA steadily since August. Yesterday, the NASDAQ composite index broke below its 30 SMA line and its rising trendline for the first time since August. This is a trendline break on above average volume…. meaning, bad news. NASDAQ seemed to have missed out on the strength in the Dow so far and with the Dow also slowing down, the NASDAQ composite could win this tug of war to downside along with major indices soon. All short term trend indicators are showing a bearish trend developing on NASDAQ for the first time since the rally begun in August. The only consolation is that it managed to close somewhat at the 30SMA line by the end of the day. Today will be a critical day, if NASDAQ get back up today, it could negate yesterday’s action as a false ditch. If NASDAQ continues lower today, I will have to announce that we are at the beginning of the Bear trend for the NASDAQ composite index.
 
Market conditions are getting more and more dangerous for directional trading and the Star Trading System has done a great job so far of keeping us out of the markets with no qualifiers.

Jason Ng
Founder, Masters ‘O’ Equity
mastersoequity.com
“Your Personal Stock Option Mentor”

I think every traders will agree that setting Stop Lost is one the most important thing to do in trading. In fact, this is the first thing that all traders should do right after execute the trade. For me, Stop Lost is my golden rule that I always practice in all of my trades. 

Just look at what happen to my latest portfolio, ASF. I bought ASF JAN07 40.00 CALL at $3.50 on 15-Dec-2006 after monitored it for about an hour. On that day, I locked my Stop Lost at $41.00 (base on underlying stock).

When the market open on Monday (18-Dec-2006), I readjusted my Stop Lost from $41.00 to  $42.20. Unfortunately, the market did not move in my favour. I was traded out at $2.90 as ASF drop to $42.20 with 17% lost. Do I feel bad? No! Being involved in stocks & options trading for more than 2 years, I would say this is normal. It is impossible for us to win 100% in all our trades. But we can’t lose most of the time too! We need to find a good system or strategy that could produce more winners than losers. I’m glad that I’ve found a great strategy & great guru with Star Trading System. I need to confess here that Jason’s system is the only one strategy that I use in my option trading. With 90% success rate, what else can I say.

Now, back to ASF. Let see what happen next after I closed my position automatically as the price hit my Stop Lost. Before I went to bed about one hour after I closed my position, not much changes in ASF price. But when checked the price on the next morning, ASF dropped $1.09 (2.57%) and closed at $41.30. Want to know what the price of ASF JAN07 40.00 CALL? It’s $2.30.

Do you see the beauty of the Stop Lost now? If I didn’t set & activate my Stop Lost, I’ll be losing 34% in that trade alone.   
Click on the thumbnail below to view the full size chart.

Want to know the secret of my trade?
Check out the Star Trading System at masteroequity.com