Wednesday, May 13, 2009

Are futures fooling me again?

Ok here is SPY 30 min for the week including pre-market action. As you can see we held last week Tuesdays low and saw a sizable bounce, more then I expected. Futures are currently trading EXACTLY at the lower trendline I had posted yesterday. So a retest of yesterdays low should only give us a marginal bounce to test mondays low.

I had mentioned that during option expiration week we should trade within the previous weeks range. Well we are on the edge of breaking this range. We held at 896 yesterday and have one last range left here at the bottom at the 890 (last week mondays low). The targets on the upper ranges are marked in blue representing last week monday/tuesday high and the last level at around the 918-920 range on S&P.

As you remember breaking the 870 range we needed a lot of buying power to bring us well out of this range to be able to use the 870 as support once broken. The same can apply here, a break into the 890 may not be enough to leave 900 behind as resistance. A bounce off the 890 should break 900 again on the upside to get back into the 906-908 range as the top. So we have to see.

Watch volume on the 1-min carefully today, also have another graph up for 5 min candles to see if we get indecision on the bounces. Also use RSI as I had posted yesterday so we can determine what kind of bounce we are dealing with.

Position wise. I am still holding SDS, and started buying into my GE September puts (GEW UN). I will keep on adding to this position over this week and possibly next for a total of 4% cash exposure (meaning 4% of my cash tied up in this option). I may do another set of puts for the previous expiration (GEW RM) to get some better value for my money in case we will not see a new major low and stop at the 716. Other then that still waiting to pile into SRS and SKF. I will scale into those slowly and use some of my remaining cash and possibly some of my SDS position for this as well. While my SDS has an average price of around 77 (without including money I made from hedging so its much closer to 70) it is a winning position over a 3 month time frame.

Market is getting weaker overall, however selling has not yet stepped in. This is totally normal and should not be misunderstood for the lack of commitment from the bears. To go back to my old statements - who really needs to sell? Those large inventories are waiting on the sidelines still waiting to be unloaded - why has this not occurred yet? Fund Managers know you cannot catch the perfect top or bottom, so they assume a risk of 5% off the top (930) with the potential of making another 5% (run to 1000 range). A break of 870 on the downside will then trigger selling to occur from this level. 870-880 is a key range for any bull at this point - a break here and the dip buying is over.

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