The Fastest Money You Will Ever Make is on the Downside

People are scared of falling markets--but they shouldn't be...

The Fastest Money You Will Ever Make is on the Downside

Stocks fall faster than they rise. This week's bearish pick from the Daily Report produced a 150% winner in 5 days! Each week one of the stock picks is highlighted that subscribers could have jumped on. They could have traded any number of strategies, but for this example an at-the-money option was selected.

A week ago (October 15th), NCR was featured as the "short of the day". Subscribers could have purchased the November $12.50 puts for just $.90. Today, the puts traded as high as $2.30 catapulting a $900 trade into $2,300 in just one week! You'll see stocks drop like this but rarely will they rise like this--the super fast profits are almost always on the downside.

Subscribe to the Daily Report to take advantage of trades like this. To learn more about a trading subscription that gives you two new trade ideas each day--one bullish and the other bearish--and a Package to take advantage of them click here.

Market Commentary -Last week, we talked about taking profits on long positions and the market has dropped. Subscribers are making great money and the action is picking up.
By the end of this week, 35% of the stocks in the S&P 500 will have reported earnings. Results have been good with 78% beating estimates. Unfortunately, that is already priced into the market. Yesterday, the S&P 500 made a new high for 2009 and an intraday reversal pushed it to a new five day low just before the close.

This type of price action tells us that significant resistance is forming. We saw the same type of price action in September and that key reversal resulted in a five-day decline. The most recent dip in September was deeper than the prior two dips and the breakout last week was minimal.

Overhead resistance does not mean that we will see a dramatic decline. There are still many Asset Managers who are under allocated and cash is still flowing into the equity market. This demand for stocks is being met by supply. Traders are taking profits after a 60% rally from the March lows. These two forces will offset each other and the market is likely to fall into a trading range throughout the rest of the year.

The comps from a year ago will be easy to beat, but as time passes, we will be closer to an interest-rate hike by the Fed. Again, these two events will offset each other. The easy money has been made and it is time to shift to a more neutral trading strategy.

Before tomorrow's open, we will hear from Amazon, American Express, Broadcom, Capital One, Western Digital, Honeywell, Ingersoll-Rand, Microsoft, Schlumberger and Whirlpool.

Amazon will post decent numbers, but future margin contraction (Wal-Mart is cutting prices) will weigh on the stock. American Express and Capital One will have increasing consumer default rates and the reaction could be negative. This has been an issue with every major bank that has announced. Microsoft has rallied ahead of the release of Windows 7 and this could be a “sell the news” event. All told, earnings could spark some selling on Friday.

Today, initial jobless claims came in at 531,000 when analysts had expected 515,000. Continuing claims dropped below 6 million. The combination was a wash and the market did not react to the release. There are a number of economic releases due out next week and they include durable goods, consumer confidence, GDP, initial claims, Chicago PMI and consumer sentiment. Analysts are looking for a 3% rise in Q3 GDP and that is likely to be the most important economic number next week.

There are great opportunities on both sides---the market is likely to chop back and forth within a 10% range (+ or – 5%) through year-end.

Bears have been carried out in body bags and for that reason we may not see a huge run-up into the end of the year. They have covered their positions and we will not see short covering rallies. At this point we should be less worried about a breakout than a breakdown. If the SPY breaks below 102, start buying short positions. This probably won't be happening, but we need to be prepared. Get your watch lists ready for stocks poised in both direction by clicking here.