Goldman and Merrill Now in the Land of Bearish Japanese Candlesticks

Goldman Sachs and Merrill Lynch may have topped and rolled over as this is being written on the early afternoon of May 5, 2008.

Viewed from the standpoint of Japanese Candlesticks technical analysis, the Monthly price chart of Merrill Lynch (MER) showing its shares' price action for December 2006, January 2007, and February 2007 (yes, 2007!) reveals a three-bar "Evening Star" pattern in which the middle bar was a "Shooting Star." This configuration is very bearish. From a daily high of 98.68 on January 18, 2007, prices declined to a low of 78.76 in late February 2007, then recovered to a high of 95.00 in May 2007, and were essentially in a continuous slide from then until a low of 37.25 was recorded this year on March 17. Since then, prices have risen to a high of 54.00, recorded yesterday.

Yesterday's price bar in both Merrill and Goldman was a variation of a "Shooting Star," which, as aforesaid, is bearish. Closing prices yesterday were below opening prices, although prices closed higher on the day. So far today, prices in both of them are lower than yesterday. We may have an "Evening Star" in the making, in each issue; and if Evening Stars do form, the outlook is bearish for each of them.

Quite apart from the Japanese Candlestick formations, our generally reliable Indicators suggest that prices in each issue may be in the process of topping, thereby confirming the Candlestick readings. We shall see what the next days bring.

The larger point which is intended to be made is that, as far back as January 2007, red Candlestick flags were flying with respect to Merrill Lynch shares. An astute observer would have recognized the three-month December-January-February pattern as a bearish "Evening Star," and could have conducted his financial affairs with the thought in mind that a large decline was probably in the cards - and it surely was.

Interestingly, today's observations with respect to Merrill Lynch mirror an almost identical observation which I made in an earlier article, with respect to Bear Stearns. The bearish Candlestick patterns were clear as crystal at the close of February 2007 in both Bear and Merrill.

The author is an experienced investor; a retired attorney and corporate CEO; the creator of the "Candelaabra" technical analysis system for use in the financial markets; and has passed the NASD Series 65 Investment Adviser exam. He publishes his investment advisory newsletter to help you keep your money safe and to guide you to profit in the financial markets regardless of the direction of price trend. Find out more about making money in any economic climate. Free information and sample investment newsletter are ready and waiting for you, without any cost or obligation, right here at ====> http://www.candlewave.com/ Go ahead - click on me!

Reuters - World stocks plunged to three-year lows on Monday as investors fled to government bonds, gold and the low-yielding yen, fearing policymakers' efforts to contain the credit crisis might not be enough to prevent a recession.

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Selling Out of the Money Premium

Selling out of the money premium can be an efficient way to building wealth. It can provide a high probability trade that has great return.

So, what is premium selling? Premium selling is simply selling calls and puts on stocks. They can form spreads called bull put spread, and bear call spread. To be profitable the stock has to close higher for puts, or lower for calls, then the strike price of the option. For instance if you sell the $40 put and the stock is at $48 by expiration you would be profitable. No one is going to make you buy this stock at $40 and sell it for $48.

Some premium sellers choose to sell a put above the value of the stock. This is considered an in the money trade and is dangerous. In this case they must have the stock move above the price of the option by the time it expires. If it doesn't they are forced to buy the stock at a higher price then it is actually worth.

This type of trading can be dangerous because you only make money if the stock does only one thing, go up. If it goes down or sideways they will lose money. Making this a speculative trade.

That is why option sellers are benefited if they sell out of the money options instead. This will give you a smaller possible gain but a much higher chance of being right. That is because you do not need the stock to go up for you to make money. It can go up, sideways or even down a little bit for the trade to be profitable.

Another thing that should be considered when selling premium is that you do not want to let the option have a long time. The less time you give the stock to move the higher chance you will be profitable.

For more information about bull puts visit http://www.stocks-simplified.com/bull_put_spread.html

For more information on trading in the stock market visit http://www.stocks-simplified.com

Reuters - Three more European governments offered blanket bank deposit guarantees before shell-shocked markets open on Monday, as regulators from Washington to Seoul scrambled to contain the deepest financial crisis in 80 years.

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