The market broke out of its primary trend last week and has declined to test both the 50-day moving average and lower (major) trend line. However, look at the last few reversals to the upside. You will notice that - except in late August, each time the market showed us a large red candle (down day), followed by an indeterminate candle, the market found support and headed north.

By “indeterminate” candle, I mean a small candle that indicated that neither the bulls nor bears had control. In late August, the candle was white, an up day, as it was TODAY. This could indicate that the market is finding support and ready to break back into its trend.

More evidence? Every time the CBOE Sentiment Indicator (VIX) has hit 30 or close to it, it has heralded an upside reversal. This happened in early July (33.05) and the beginnings of September (29.57) and October (29.56) The VIX today hit 30.70, its highest level since its July high.

Despite all the Aunt-Pitty-Pat handwringing on CNBC (remember, Aunt Pitty Pat collapsed and needed smelling salts in Gone with the Wind), it looks like the market could be about to recover back into its primary trading range.

Covered Calls

If this happens it will be a great time to write OTM calls, closing them early for a profit. How much profit? Well, how about 60% to 80% of the maximum possible profit if called out? Obviously, the stock should be reversing to the upside with the market.

For more information on this, please see our list help pages, particular on CallWriter’s proprietary indicators.

Our entry signal will be another white candle and a fall in the VIX to below the 27 level. At some point the market will make a serious retracement (see earlier posts), but if THIS IS NOT IT, then let’s make hay while the sun shines. Don’t jump the gun, though.