Friday, November 7, 2008

Long time no talk

Sorry buys, between getting ready for the big move and traveling I did not have time to post any detailed updates. Regardless I have shared some of my thoughts with some of you over the past few days.

Past Days
As you know I had called for the drop we experienced the past 2 days before hand. We had a bearish rising wedge forming that we broke out of 2 days ago. Prices had increased on lighter and lighter volume giving clear signs of a reversal.

Unfortunately due to my travel I had my stop loss set a bit too tight for the short position I had entered around 1000 on the S&P - missed out on all gains of the past 2 days - as I had entered a very large short position I was too concerned on the upside and tried to remove any risk from the trade which ultimately cost me a fairly large amount. I did not follow my own rules of a 1:4 risk/reward ratio. I assumed ZERO risk to be able to make huge gains - does not work, I knew it but for some reason I was too afraid - This has happened to me quite a few times now so this time, I better learn my lesson.

As many remember the lows for the year are in - I know many are saying now we will go lower, and we will but not during this cycle. I expected the downmove to stop at the 922 level, stopping at the 900 (899 low of the day) is a bit more bearish then I like but that can be acceptable considering we had a huge sell off without any upticks. We closed at the 904 level, a bit too low for my taste but I am confident we will hold at least on the short term. The next 2 days will decide if we can sustain the lows. If we are trading below the 890 range for an extended period of time (at least half a day) and close in the 890's we will create new lows. There is a slim chance of this happening.

Time and Price
922 of course my exit number I had anticipated after our 1007 downturn
900 very important support, a bounce here should be expected
~896 this number could come into play as the support. If we are to get a bounce here it has to happen fast and should trade at least 10 points higher within 30 minutes. If we are to get sideways action around this point we have to be very cautious and careful

There will be more numbers coming into play today but those are the important ones to remember. We are oversold now and should not see a 40+ point day on the downside.

How would I trade?
This is a new section I may start to add to give advise on what I am looking for to enter positions. Please keep in mind that anything can change and needs to be monitored closely. There are many type of patterns and signs to look for before entry that are to complex to address here. So I am giving a bit of an idea on what to look for and how to protect your position.

I would expect a retest of the 900 range in the morning hours. As I am posting very early (differnet time zone) I am unable to include the morning pre-market action. My expectation though would be a bit of a rally that would find its top around the 922 or maybe a bit higher. We can either continue from here which makes the long side trade too risky to enter or retest the 900 - here is where we can go long with low risk accompanied with a tight stop loss around the 890 range. If you are to go long start off your position with a smaller amount to be able to average down in case it overshots - I would put my second target at the 894 range with a stop loss at the 885. If we are to rally and bounce right off the 900 wait for the first pull back and then add to your long position at the 912 range (where I would expect the pullback from the previous bounce).

Again I would not try to short at this point as the risks are extreme and stop losses won't help you as you as much on the downside due to the whiplash that can occur.

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