Sorry bulls but my bearish signals are firing

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Well, after that bounce last week (which I DID predict by the way), I’m getting increasingly bearish ? on the market as we approach the back half of the week. I’m not sure we’re there quite yet…but I do think a pullback is coming in a couple of days.

There are a few reasons. First, September and October are seasonally two of the worst months for stocks.

Take a look at this chart of historical returns, and you’ll see what I mean.

We had a pretty decent June this year, and August hasn’t been horrible so far, so maybe this won’t play out.

Seasonality isn’t a trading set-up.

However, it’s important to keep the yearly cycle in mind as a context for price action.

The second reason is the “head and shoulders” chart pattern that’s forming on SPY. We could be setting up for a big move down into October.

I’ll go into this in more detail in a minute.

All Alpha Hunter subscribers get much more information about the overall market trends and trading opportunities.

So why haven’t you joined us yet?

Let’s look at this bearish pattern forming on the daily chart.

We’ll start with a schematic of the basic “head and shoulders” pattern.

Look at this for a moment and notice what’s happening.

A left shoulder high that pulls back to the neckline followed by another higher rally (head) that pulls back to the neckline. The chart is completed by a third rally with a lower high that eventually breaks to the downside.

What do we see on SPY right now?

Notice the black neckline I’ve added to the chart?

It’s impossible to predict whether or not this pattern will actually play out…but this doesn’t look promising.

If we can’t get a strong break of that red 50-day SMA line, I may become a short-term bear.

For the Alpha Hunter system, dealing with a bearish market is no problem at all.

Remember, we can sell options above the stock price if it’s falling, and we may well be playing to the short side soon.

I see more sideways chop into Thursday.

There’s a slew of economic data coming out Thursday and Friday that I think will determine the trajectory of the market.

Job reports and inflation data have been moving markets, so how am I playing the market now?

Keeping my positions small and taking profits early.

I always have the choice of whether or not to trade, and so do you. I’m not telling you what to do, but personally, I’m being much more conservative right now.

My MSFT trade from last week illustrates how we can profit selling options ON BOTH SIDES of a range-bound stock.

Last week, I alerted Alpha Hunter subscribers I was entering an Iron Condor on MSFT.

In case you missed the discussion in the live room, an Iron Condor is just a bear call credit spread and bull put credit spread entered at the same time.

On Aug 23rd, when I sent the alert, MSFT was trading in a tight range between $318.38 and $311.3.

By selling the call spread -$340/+$345 and the put spread at -$310/+305, I stood to profit as long as MSFT didn’t move higher than $340 or lower than $310 before Sept 8th.

While it bounced up and down, it never came close to breaking my short strikes on either side, and the options I sold lost value from time decay.

I hit my profit target of 45% yesterday when I sent out the closing alert.

In less than a week, I pocketed $900 from a stock that did absolutely nothing (*trading is hard, results not guaranteed)!

That’s the power of options selling?.

Couldn’t I have sold just the call or put spread?

Absolutely. However, my analysis suggested sideways consolidation – it was the perfect set-up for an Iron Condor.

I stood to make a profit on both sides while limiting my risk.

Since you can’t lose on both sides, winning one offsets the risk on the other.

I promised a discussion of candlesticks – so let’s cover one of the most important ones.

There are different ways to interpret these candlesticks, so we’ll just hit the highlights here.

When the open and close prices are roughly equal, giving the candle a very small body, it represents indecision in the market.

In other words, the bulls and bears canceled one another out.

Gravestone doji – Price opened low, was driven higher by the bulls, then sold back off as the bears stepped in. This is decidedly bearish. Look for potential continuation of a downtrend or reversal of an uptrend.

Long-legged doji – Compete indecision as the bulls and bears fought a pitched battle ending in stalemate. In flat markets, look for further consolidation. If you see this at the top of an uptrend or the bottom of a downtrend, look for a potential reversal.

Dragonfly doji – Price opened high, was driven lower by the bears, the climbed again as the bulls took over. This is quite bullish. In an uptrend, look for potential continuation, and in a downtrend, look for a possible reversal.

PRO TIP: Don’t base your trades on these candles alone. Always use other indicators, support/resistance levels, and a confirmation candle.

Next time, we’ll cover the RSI indicator, something all traders need in their arsenal.

To follow EXACTLY what I’m looking at and see which trades I’m making, join Alpha Hunter today.

All members get exclusive access to:

• The Alpha Chamber – Live analysis, trading, and chat

• Detailed Trading Plans – Direct to your inbox every single day

• Alpha Pulse E-Book – Learn HOW to sell options the right way

• Every trade I take via instant app alerts.

And just as a reminder, make sure to join Jason’s room TODAY at 1pm EST to hear all about his newest Small Account Journey -> join room here!

P.S. Please feel free to reach out to Mr. Jeff Brown any time at 800 585-4488 or [email protected] and he will find the service that is right for you and answer any questions you might have!

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