Markets around the world are starting off 2009 in a celebratory mood after a dismal 2008. European shares rose sharply, bolstered by gains in the mining sector and a solid start to the year by most banking stocks.

The Dow Jones Industrial Average ending above the 9,000 mark for the first time since Nov. 5, as investors are looking forward moves by the new administration for another big stimulus package once Barack Obama is sworn into the presidency in about three weeks’ time.

The Dow Jones Industrial Average finish up 258.3 points, or 2.9%, to end at 9,034.69 or 6.1%, for the week. The S&P 500 climbed 28.55 points, or 3.2%, to 931.80, leaving the broad-market index with a weekly gain of 6.8%. The Nasdaq Composite rose 55.18 points, or 3.5%, to finish at 1,632.21, a level that left it 6.7% ahead of last Friday’s close.

Crude-oil futures rose to three-week highs, gaining nearly 4% on concerns that Russia’s cutting off natural gas to the Ukraine could impact European energy supplies. Crude for February delivery ended up $1.74, or 3.9%, to stand at $46.34 a barrel on the New York Mercantile Exchange.

The Dow has now climbed over 7% since its close on December 23 with gains in 5 of the past 6 days, and closed over the 9,000 mark for the first time since November 5^th making their best first trading day of a new year since 2003.

“Cheers to a new year and another chance for us to get it right” - Oprah Winfrey

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Global Markets Start Off 2009 With New Year Optimism

The Dow finished at 8776 Wednesday, up 108 or 1.25%, and the S&P was up 12.61 at 903.25, up 1.4%. The Nasdaq rose 26 points to 1577, an increase of 1.7%.

For 2008, the Dow Jones Industrial Average has slumped nearly 34%, its worst year since 1931, right in the midst of the Great Depression. The S&P down 38.5%, and the Nasdaq down 40.5%. The fourth quarter was the worst quarter for stocks since the fourth quarter of 1987.

The S&P 500’s decline was the first that exceeded 30% since the 39% plunge in 1937. The benchmark gauge for U.S. equities lost 23% in 2002 and 29.7% in 1974, losses that were followed by annual gains of 26% and 32%, respectively.

The Chicago Board Options Exchange Volatility Index (VIX) jumped 78% to 40; a level never exceeded 50 before October. Its close of 80.86 on Nov. 20 was the highest in its 19-year history.

At its lowest closing level of 2008 on Nov. 20, the S&P 500 was down 49% for the year and 52% from its Oct. 9, 2007, record of 1,565.15. The plunge came as more than $1 trillion in credit-related losses at global financial companies triggered a global recession.

As we are leaving 2008 behind, when it comes to 2009, the big question is how ugly can things get and how they’ll fair compare to recessions of the past.

The 1973-1975 recessions, the jobless rate was above 10% for 10 consecutive months; and during 1980-1982, the economy did not grow for two consecutive years.

The rebounds from those two recessions, however, were powerful, marked by strong growth for a couple of years thereafter with housing leading the way, with an average growth of 22% in the 1976-1977 period and 23% in the 1983-1984 period.

“An optimist stays up to see the New Year in. A pessimist waits to make sure the old one leaves” - Bill Vaughan

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Good Bye 2008 Welcome 2009

There are numerous explanations for the Santa Claus Rally phenomenon, including tax considerations, happiness around Wall Street, people investing their Christmas bonuses and the fact that the pessimists are usually on vacation this week.

Since 1969, the S & P 500 index has an average gained of 1.5% in that short period encompassing the last five trading days of the year and the first two days in January.

Last year Santa took a break and looks like this year may be the same. With U.S. unemployment claims reaching their highest levels in decades, total retail sales dropped 5.5% to 8% for November and December; I guess Santa would rather be with the children than spending time in Wall Street.

The S&P 500 rose only 7.4 points in light trading to 872 on Friday, the first trading day after Christmas, but not even a Santa Claus rally could end 2008 from going into the books as the worst year for stocks since the Great Depression, thanks to the storm cause by the housing market slump and the credit crisis that finally brings us into a recession.

With just three trading days left, the S&P 500 index is on pace perhaps to match Wall Street’s second-worst year ever, 1937, when the S&P also plummeted nearly 39%.

So far in 2008, the Dow industrials have lost 35.8%; the S&P 500 is down 40.6%; and the Nasdaq Composite is down 42.3%. If Wall Street does not rally next week, 2008 could well challenge 1931, Wall Street’s worst-ever year where the S&P crashed 46%.

“Contemporary American children, if they are old enough to grasp the concept of Santa Claus by Thanksgiving, are able to see through it by December 15^th” - Roy Blount Jr.

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Is Santa Claus Coming To Wall Street This Year?

Professional traders do not change their trading methodology, they develop one and stick to it religiously. If your methodology works more than 50% of the time, then it is a good methodology and all you need to do is to stick with it.

But if your methodology doesn’t seem to be working, don’t try to devise another one for it will never end. Just improve on it. Maybe it’s only your entry signals that are not delivering the winners or it could be your exit strategies are not very clear. All you need to do is to fine-tune your process.

All good trading methodology must come with a set of rules, market setups or price action that must appear in order for them to take the trade. You must have a system to short-list and qualify them before you even consider trading them. Remember, trading is a business and you must treat it with respect and never compromise and put your money at risk more than you should. Trade only the ones with high probabilities, never jump the gun, the market will always be there.

Never trade a size that you are not emotional comfortable with. Know your maximum comfort level and never go above it even when you are on a winning streak. Typically, if I traded more than 10 contracts, I would be more stressful and I know that I don’t possess the emotional or psychological skill yet necessary to trade bigger than that size. Learn to accept your trade size comfort level and increase it gradually as you become more proficient in your trading.

Never put yourself in the precarious position of losing more money than you can afford. The worst feeling is that when you want to trade and not being able to do so because your account is too low and you to continue to trade unless you add in more funds.

It is always wise to have a maximum capital at risk for every trade so that you will not have the luxury of blowing up your trading account so that you can aways come back and trade again the next day.

“A complex system that works is invariably found to have evolved from a simple system that works” - John Gaule

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A Systematic Trading Methodology Is Your Answer To Achieving Consistent Profits

Most novice trader started learning to invest in the financial markets wants to master their trading skills in the shortest possible time. Thus they tend to overdose themselves with too much information which can result in confusion and often lead to indecisiveness and frustrations.

Many were lured into trading with the “get rich quick” mentality trying to find their pot of gold. These are the works of many so-called gurus who uses misleading claims to attract people into attending their seminars so that they can make their pot of gold instead.

You may have achieved some success in your trading by using what have been taught to you before, but most novices doesn’t know that it takes more than just a few successful trades to make you a millionaire trader. Even the most successful traders are required to go through a bumpy roller-coaster ride before making it.

If you don’t have the time and conviction to regularly monitor your investment, you are not going to find your pot of gold. The market is volatile and unpredictable. If you don’t have the stomach for it, look for something with lower risk instead.

A very common misconception on options trading is that “low risk” which doesn’t mean “no risk”. Buying options without first understanding how it works is risky. Using options solely for leverage thinking that every dollar you invest can make you ten bucks in return is even more risky.

Risk can be managed, humans have emotions and more often, they make decisions based upon their emotional reactions instead of facts and research. Many novice traders started out very enthusiastically thinking that they have finally found their way to make the millions, but their initial interest usually wanes over time as not many will have the capital and the emotional stamina to last it through.

Lastly, never invest money that you can’t spare. Yes, you could make a killing in the markets and triple your investment by leveraging with options but it is even easier to lose it all. If you can’t afford to lose the money you have invested, it’s better for you to stay off. Remember, not everyone can invest in the financial markets; it requires money and patience to develop.

“If your life is free of failures, you’re not taking enough risks” - H. Jackson Brown, Jr

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Searching For Your Pot Of Gold In The Markets At Your Own Risk

The market may seem to have bottomed and looks like the bulls are back but there is still downside risk especially when volatility is at all time high. One beautiful simple hedging strategy to reduce the overall risk and at the same time lowering the cost is the Bull Call Spread.

The Bull Call Spread can be considered a doubly hedged strategy. The price paid for the call with the lower strike price is partially offset by the premium received from writing the call with a higher strike price. Thus, your investment in the long call, and the risk of losing the entire premium paid for it, is reduced or hedged.

As a trade-off for the hedge it offers, this written call limits the potential maximum profit for the strategy. You can use this spread when there are uncertainties on the stock’s bullishness and take advantage on the volatility.

The Bull Call Spread tends to be profitable when the underlying stock increases in price. Maximum loss for this spread will generally occur as the underlying stock price declines below the lower strike price. If both options expire out-of-the-money with no value, the entire net debit paid for the spread will be lost.

The maximum profit for this spread will generally occur as the underlying stock price rises above the higher strike price.

Here is example of a Bull Call Spread, the profits are slower but surer and the risk is also lower.

Cost $1.40, Max Profit $1.10, ROI 78.57%, Duration 30 days.

The spread will expands when it moves closer to expiration and as the stock move higher. I prefer to capitalize on the volatility by establishing the Bull Call Spread with both the legs that are in-the-money as the higher strike short call will always provide me with more time value. Even if I am wrong, the stock decide to move sideways, I can still achieve maximum profits from it.

“First weigh the considerations, then take the risks” - Helmuth von Moltke (1800 - 1891)

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Use A Bull Call Spread To Reduce Risk When The Volatility Is High

On Monday, the first day of December, the Dow Jones stumbled nearly 680 points, following the global sell-off action, the Nikkei 225 dropped 1.3% in Tokyo, and the FTSE 100 fell more than 5% in London as economic reports from around the world compounded anxiety about a global recession.

The Dow Jones Industrial Average fell 679 points, or 7.7%, to finish at 8,149. The S & P 500 index fell 80 points, or 9%, to end at 816. The technology-heavy Nasdaq Composite slumped 137 points, or 9%, to 1,398.

The US economy has officially slipped into recession. Many economists think the downturn is far from over and maybe in the midst of the longest slump in the post World War II era as job losses mount and credit dries up. The news send US stocks tumbling down and calls for another economic stimulus program.

The longest economic slumps since 1945 were the 16 month downturns that ended in March 1975 and November 1982. The Great Depression lasted 43 months, from August 1929 to March 1933. The current recession is expected to persist through the middle of next year.

A recession occurs whenever the gross domestic product, the total output of goods and services, declines for two consecutive quarters. The GDP turned negative in the July-September quarter of this year, and many economists believe it is falling in the current quarter at an even sharper rate.

Wall Street financial institutions already had declared that the US recession began in December 2007, when there was a sharp increase in the US unemployment rate.

Other key barometers, such as payrolls and the jobless rate, have clearly been in a recessionary trend for most, if not all, of the year. Payrolls have fallen every month since January and the jobless rate is about two percentage points higher than a year ago.

Another key area, consumer spending, took longer to join the trend, but that’s largely because of the government’s massive fiscal stimulus plan, which sent out tax rebates to millions of Americans.

That boosted income and spending through the second quarter, but the effect quickly faded in the early summer when the government stopped mailing out checks. Consumer spending indeed shrank in the third quarter for the first time in almost two decades.

“The truth is, we are all caught in a great economic system which is heartless” - Woodrow Wilson

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The US Economy Is Now Officially In Recession

The most important ingredient in achieving success in trading is discipline. It is something you must adhere to at all time if you ever hope to achieve any level of trading success. Trading discipline must be practiced 100 percent of the time, every trade, every day. Omitting this rule will always eventually result in painful losses.

A profitable trader condition himself to trade with discipline over and over again. The success of a trader achieving consistent profit in the markets is directly related to his discipline. Trading is 90 percent discipline. The formula is relatively simple, trade with discipline and you will succeed; trade without, you fail. A trader with discipline will put more money in his pocket then the one without. In short, trading with discipline equals to increased profits.

If you are in a losing streak, you should stop and take a break to review your trading discipline and have them followed in your next trade and size it down to a one contract no matter how big it is that you been regularly traded. The psychology reason is that you follow through with discipline to build back your trading confidence before betting big.

I always start my trade size with a one contract. If my next one or two days are profitable, then I ‘ll add more contracts to my original trade. This way I am certain that I am on the correct flow order of the trade before adding more.

When I make money from my trades, I am rewarded by the market moving in the direction of my position, however when I am not satisfied with a small winner, I usually take whatever available and continue to trade in the same direction by simply rolling my option positions. Rolling your option trades reduce you risk at the same time taking your profits.

Many times when you hang onto the trade with hopes of a larger gain, only to watch the market turn and move against you. When this happens, you’ll hesitate to cut your losses and hang onto the trade which will eventually deteriorates further into a much bigger loss.

Theres no need for you to be greedy. Its only one trade. You’ll be able to make many more trades every trading sessions and many more throughout your trading endeavor. Opportunity exists in the markets all of the time. Don’t be greedy, be discipline instead.

“Life has no other discipline to impose, if we would but realize it, than to accept life unquestioningly. Everything we shut our eyes to, everything we run away from, everything we deny, denigrate, or despise, serves to defeat us in the end. What seems nasty, painful, evil, can become a source of beauty, joy, and strength, if faced with an open mind. Every moment is a golden one for him who has the vision to recognize it as such.” - Henry Miller

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Trading With Discipline Equals To Increased Profits

Many novice will just buy and sell options without first understanding the inherent risks, exposing themselves to additional risk while trying to leverage with options.

All option traders should know that options are wasting assets and time is your no.1 enemy, its value will immediately begins to deteriorate and the time loss decay increases as the option gets closer to expiration.

When buying an option, not only you must be right about the direction that the underlying stock, but also when this move will happen. A wrong timing in the timing even by a couple of days, could cost you losses.

One attractive feature of trading options is it’s ability to leverage if the underlying stock move in the anticipated direction but if it moves in the opposite direction, the option’s value can rapidly decrease. In fact, many novice traders are often caught by surprise by how fast options can lose their value.

The rapid loss is largely due to the underlying stock moving in the apposite direction coupled with the added effect of value loss due to time deterioration. The greater the stock moves in the wrong direction, the more difficult it gets to recover in the remaining time of the option. On the other hand, if you are right on the stock’s direction, it’s easy to see your options value quickly double.

When you buy an option, you are paying for the time to be right about the direction of the underlying stock to make a return on your option only if you sell it before its expiration date or exercise the option.

Although you may not sell the options at its most profitable moment, it can still have some inherent value, even out-of-the-money options before the expiration. Even if the underlying stock is moving in the wrong direction, it is possible to recoup some of your capital back by selling the option prior to expiration rather then leaving it close to expiration hoping that it will make a strong rebound.

Failure to act before the expiration date will often only leave you some pennies left on your dollar investment. The better alternative is to roll your options to a longer expiration month by selling the current month left to expiration options position and buying the further month expiration options. This action will cost you more but you are able to have more time to be right.

“A lot of people approach risk as if it’s the enemy when it’s really fortune’s accomplice” - Sting

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What Are The Risk Exposed In Buying Options?

Stocks were hammed on Thursday with the Dow losing another 5.6% to 7552.29, the lowest level since March, 2003 was truly frightening. The index fell through its 2002 lows, a level traders were hoping would hold but was down 6.7% at 752.44.

On Friday, U.S. stocks rallied during the last trading hour on a report President-elect Barack Obama would nominate New York Federal Reserve President Timothy Geithner as Treasury secretary. The leap higher in the final hour of trade came on the heels of a two-session freefall to gained back halve of the market’s weekly decline.

The Dow Jones Industrial Average surged more than 500 points before finishing at 8,046.42, up 494.13 points, or 6.5%. The blue-chip index suffered a weekly lost of 5.3%. The S&P 500 gained 47.59 points, or 6.3%, to 800, closing down 8.4% from last Friday’s close. The Nasdaq Composite gained 68.23 points, or 5.2%, to 1,384.35, tallying a weekly loss of 8.7%.

In the past week, it became apparent than any progress in the credit markets is a fragile thing. Swirling in the same circle of fear with the crippled financials are rumblings that there are deep problems lurking in the trillion dollar commercial mortgage backed securities market.

The bailout on the auto industry after two days of hearings and a failed effort by Congress to cobble together a plan leaving uncertainties that Congress will revisit the issue in December as the clock ticks closer on GM bankruptcy.

There will be lots of data for investors to digest in the week ahead, starting Monday with existing home sales for October. The S&P/Case Shiller home price index is reported at 9 a.m. Tuesday, and new home sales for October are reported at 10 a.m. Wednesday.

Also reporting on Tuesday, third quarter GDP at 8:30 a.m. and consumer confidence at 10 a.m. Weekly jobless claims on Wednesday, together with personal income, durable goods, Chicago purchasing managers and consumer sentiment.

Coming Friday is “black Friday,” the traditional launch of the holiday shopping season, which analysts and economists expect to be bleak this year. Retailers sales will be watched for any signs of life. The consumer, hampered by the credit crisis and rising unemployment, has been on a spending strike since mid September.

“If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what’s going to happen to the stock market” - Benjamin Graham

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Market Still Down To Worst Level Despite Last Hour Rally