Monday, November 9, 2009

We are on for a new high on SPX

Well what a day - never in a million years did I expect such a move but it goes to show how one sided analysis can be. As you know I have been focusing all last week on the upper range of 1074 and counted out any possibilities for what we just did.

(Below chart is in ES)

W1 1026 towards 1058 = 32 points
W3 1039 towards 1092 = 53 points OR 1.66% of the primary wave. It does not get more perfect then that in terms of ratios as this number would represent a perfect W3 target. I am quite mad at myself for not having seen this as we moved towards 1039 with a possible W2 completing and W3 starting. I was so focused on this being an ABC correction move off the highs that was proven quite wrong today.

So what does that mean for us? We completed W3 today and are going to see ourselves in a W4 formation that is just some general whipsaw in a tight range. Minimum targets of course the 23% levels but its possibly and to be honest more likely to see a move towards the 1069 range - a range you remember being key in last weeks trading. This would be a great spot to unload some shorts or enter hedges by turning puts into spreads to minimize risk.

After completion of wave 4 we have a few targets on the upper side - per proper ratios its anywhere from 1116 towards 1131 as the max - however we have the problem of the DOW - DOW is almost at the target of 10300 - which will make the run for SPX towards those upper ranges very difficult. So we have to assume that we may get a failed W5 attempt with only a marginal new high as I had mentioned previously.

Yes - I know I did not want to talk positions but this is a good example of managing around a position. As you know put holders got killed today - on price and premium. As you can see I entered 2 additional positions today for my spy dec put - why did I choose this size? My original position was priced at 3.00 and I now lowered my average to the open price today - meaning, assuming that VIX will remain unchanged if we reach yesterdays open again which also represents the minimum target of W4 I have a chance to get out of this position without any losses or if I want to keep the position (and I do want to keep it) trade out a bit or convert the put into a spread to bank some of the premium if we do end up moving higher. But as we all know - this market has shown us over and over again that plans do not like to work out the way we always want to.

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