Thursday, August 6, 2009

The madness continues

There really is not much more to stay. From a technical perspective we got 3 closes above a key pivot point in the market, however, most technical components should be ignored at the moment as we are finding ourselves in an emotionally driven phase of the markets.

After the fact, those moves can easily be justified technically - "retracement this, retracement that, indicator x, indicator y". As you know there is always an indicator available to sell you on a bearish case, so is there one for the bullish case. Some blogs even resort to astronomical cycles. So out of 100 possible bearish and 100 possible bullish indicators, we are bound to find a few that will explain this move.

At this point, from a basic technical perspective, we are unable to make any calls for direction. We are finding ourselves at extremes very rarely seen before. We had one extreme in october 2008 and now not even one year later are finding ourselves again with a market that seems difficult to comprehend and is moving on the extreme side of the spectrum.

Can we continue going up for another week? Definitely possible, I said 2 weeks ago we should be retracing but we did not. What did you think during our crash last year? Can it go down another day? another 50 points? If you had to ask that question back then, you were answered with more drops day after day - until it stopped. Same here - we will continue going up until we stop. While this sounds totally silly I wanted to emphasize that any position that is taken now really is a gamble. If you have been long for more then 2 weeks - congratulations to you. If you are short, well I hope you covered 2 weeks ago. If you are cash - remain that way until the market becomes clearer.


  1. nice stop sweep here this morning. All the way to 1011 SPX. Last time this happened we trended lower all day.

    Lets see what today will bring. 99% chances for another green day? 18 days, 14 green, 4 red. And the red days were distribution doji's.

    You tell me what the best odds are at the moment? lol

  2. technically we almost have enough of a GAP for a stepping day up. If we manage to open above 1009 SPX we should see higher prices. Open below 1009 we will at least fill the GAP before making a decision.

  3. I'm getting spanked again with UNG since i got rid of my hedge :( At least I'm learning what you taught Chris! The problem is that I get out of my hedges WAY too soon damn it! I'm testing the water with QID right now. What are your thoughts?

  4. Ryan, trust me hedging was one of the most difficult things for me to learn. I always closed them out way too early and wanted to lock in "additional profits" but ended up loosing more then if I had kept it.

    After my many failed attempts at hedging properly I have made it a VERY simple rule that I am now following on hedges. A hedge will ONLY be closed out at break even (or price of underlying instrument when it was entered in case its a option or any other theta dependent instrument).

    Many beginners (me included) make the mistake of turning a hedge into a trade. That is wrong. A hedge is a way to offset your open positions and nothing more. Of course you can close out hedges at key resistance points but generally try to minimize what you close out. Lets say you have 10 option contracts as a hedge - if you REALLY believe its time to unhedge take off 50% with the condition that if prices do not move in your favor within a short time frame to re-enter the hedge regardless of price.

    If it were easy everyone would be doing it ... and trust me it took me a while to properly learn how to hedge and how to use the hedges as protection and NOT as trades I want to profit from.

    I have updated on my twitter today (for the first time in a while) that I entered new short positions around 1014 SPX with around 30% capital exposed. I just added another 10% here on the last spike but will not add more at this point.

  5. for today I am expecting one more push up towards my target of 1021-1022. I would expect this to be reached by 2:45-3:05 and then settle down a little bit.

    While today appears like a stepping day, at least after the initial drop we should not be closing at the highs (as normal for stepping days). I would expect more profit taking in the last hour and not a short squeeze as we had in the past.