Wednesday, August 26, 2009

Spinning Top or consolidation?

I had added a post earlier for yesterdays review.

Monthly Close
Today will be an important day and a decision time for the market to see if the monthly chart can continue to set new highs going forward. The current monthly open is around 1000 spx for the month. We have one week left and a close anywhere from 980-1010 will bring us another monthly spinner again. As you remember I use this pattern quite heavily as an indication for the month to come. The last spinner we had was in June and it gave us an amazing trade range for July. I dare to say that the market will close the month with another spinner yet again. This pattern will have a high probability to give us yet again a large range for the month to follow. Can it be another amazing up month? Or will it be the strongest down month we have had, one that I was expecting in July that did not materlize.

The easiest scenario for today would be a gap down with a stepping day lower. The GAP should be a minimum of 6 points and NOT be filled with the high of the day being set in the first 5 minutes of cash hours trading. We should continue to grind lower and possibly close the day below 1008 SPX.

For the bulls: While the bulls are still in control in terms of price we have seen weakness during our rallies that were sold off which had been very different from previous market jumps that were heavily protected by removing short term overbought conditions through time and not price. Lucky for the bulls we have been able to keep the market up and close prices above 1020 really show the price strength the market is currently experiencing. A sell off towards the lower 1000 SPX range would be an easy place to add new longs with good protection at the important emotional round number.

For the bears: I dare to say its time to take a risk here being a bear. While bears are unable to cause serious profit taking or more selling bulls appear to be loosing a bit of control to drive prices. However, this is to be expected at key resistance levels and we are still above the important FIB levels. From a risk reward perspective here is a good place to scale into a longer term short position with minimal risk on the upside. Taking the high of yesterday with a buffer of 4 points will give a great stop for any short positions.

Position Update
I have added more puts again yesterday at 10:01 and am currently exposed almost 40% on the short side. This is quite a large exposure for me at this point but we have great protection for those positions. If we GAP down today based on my above scenario I will be added another 10% of very long term puts with a stop 4 pts above yesterdays high. This will bring my exposure to almost 50% on the short side. I am confident that at the minimum we will get a pull back to the 980 levels even if september will set a new high on SPX.


  1. looks like we will have no big gap down which complicates things a litte bit. At this point we have to assume a possibility of another run up to 1030.

    The positive thing we are seeing again today is further strength on the dollar that should hinder any big rally up. The dollar has been jumping around back and forth in a narrow range the past few days so whatever move will come next will be quite strong. Based on what I am seeing in EURUSD our highs are being reversed quickly while the bottom ranges consolidate and re-attempt the upper ranges.

    Lets see what the first 15 min hold for us today.

  2. I have a tohught regarding your story about bear turning into bull. Now we all know the super computers at GS and others have algorithms written to gauge the sentiment. They can read all blogs in nano seconds and arrive at conclusion for the moment. ( see NY Times article ; mining the web --

    If we create a dummy blogs to show we are all super bulls, may be we can fool the computers of hedge funds. just a thought. If they read our minds, why not fool with their's.

  3. yeah that would definitly be an interesting analogy. Its quite funny, I actually got a set of puts based on mole's recommendation (evilspeculator). Generally I trade only my own strategies but after reviewing his plan I have to admit it sounds like a nice strategy.

    I actually downloaded TOS just for the option analysis. Either way, the point I want to make is seeing the open interest in the march 65 and 70 puts. Quite high compared to every other expiration. Many blogs get a ton of traffic and we are providing volume and are the suckers to keep on shorting to provide up rushes when we cover at key resistance levels.

    While it sounds like it would be quite evil to use financial blogs as a indication I think it may be a bit too dificult to try to put an algorithm against blog content.