Yesterday
Market took a breather just as I had mentioned yesterday for us traders. I was pleasantly surprised to see the hesitation around the 1000 mark. Based on yesterdays price action a rally towards the 1012 becomes more unlikly but is not out of the picture yet. We just breached the intraday high during our overnight session here but quickly reversed back into yesterday cash hours range.
Today
Many are calling for a stronger rally at this point that will bring us back well above the 1000 range possibly even reaching into the high 101X. I have to be honest, if this was the top last week we should get ready for more downside with minimal retracements at least on the short term until the first round of selling completes, if we end up having a strong up day today or tomorrow bears have to be very careful - yes we had a textbook reversal on many charts but we need to remain cautious.
As I have quite a lot of options in my open positions I have to be extra cautious and make sure I forecast my time windows correctly - otherwise I may end up leaving a lot of money on the table.
Position Update
I am still in all of my positions, ES from an avg of 1012 (I had closed but re-entered at same prices last week around the 1031 range but the real avg is 1012). Also have all of my puts still - Sep 100, Oct 95, Dec 85, Mar 70, Mar 65. As you can see I am playing multiple time frames with my expectations of further downside on the short term.
I will be looking to enter quite a large hedge at some point today - my perfect scenario of course would be a long position in the 980 range but based on this overnight session we may not get the chance and have to use yesterdays low as a guide if we even get there. I will post more updates before the open as I see the overnight session play out.
Current exposure to the short side is a little below 45% of cash - so I still have quite a lot of buying power left that I want to deploy after the first move. At this point I only have futures and options committed, keep in mind my option exposure is quite a bit smaller in relation to my cash balance (well options are scary if you are wrong). So in summary, I am still very cautious to play the short side due to the last 5 months of bear trickery.
Trade Lesson/Rule - Hedging
I had made a large post about Hedging yesterday as part of my trade rules. Keep in mind that my hedging strategies are still my weakest point but I had put in some rules that are quite important to me, especially the hedge during trend days and the hedge is not a trade rule. Let me know if this helps anyone out there =)
well trading quite a bit higher already and we are currently meeting the stepping day definition with a 0.8%-1% GAP up. Lets see how the market will react to the economic news - if we open at current prices we have to be ready for a minimum of 1012 today.
ReplyDeleteno clear sign either way. Could rally, could drop off the open.
ReplyDeleteShould be contained by 1008 max if it does rally.
I hate it when it's like this. SO difficult to trade... separates the men from the boys don't it?
ReplyDeletedefinitly. The ONLY way you were able to get yourself positioned for this move is to accept big risk and pain by scaling in last week and holding through the ups and downs. I doubt many were able to get a position properly around the SPX 1030+ levels. My averages are around 1012 for ES and now around 1016-1017 for all my puts. Maybe a nit more on the puts due to the vix premium.
ReplyDeleteCan you comment on the fact that we can't break 992 so far?
ReplyDeletethe longer we wait, the strong we will fall. Its a normal pattern we are currently experiencing as we are removing oversold conditions through time. We are not able to remove them through price as any strength will be sold.
ReplyDeleteAs I had mentioned yesterday and today, I do not think we will see very large rallies on this first move down. If we do not break it today, we should tomorrow.
Based on what I am seeing here, sustained rallies above 1000 are very unlikly. I would not be surprised to see one last push up to 1003-1004 and then fall very strong. Keep in mind this is still a very narrow range we are trading in with attempts to push the market higher as we do not have enough sell volume once we get down to 992. As we are making lower peaks the chances of a break become more and more likely.
Thanks Chris, very insightful. Although I tend to think that the longer we wait, the more likely we will rally back up. I don't like what has happened in the past after 2 or 3 dojis. But my thoughts are not based on much... I hope you are right.
ReplyDeletethink back the other way around, when we were rallying and instead of selling off we bounced back and forth in narrow ranges for a few days just to continue rallying.
ReplyDeleteIts a transitionary process now, dip buyers are still out there looking at buying weakness while bears are careful and will not go short at bottom ranges.
Bear market rallies end on good news, the fact that good news caused a major sell off will eventually shift those dip buyers to become sellers (on top of the huge amount of margin that has been averaged up).
Does not happen right away, but you can keep on trying with a well defined lower range, put your stop at 989, buy at 991, etc. However, now you have to deal with the big players who are selling into the strength and the small dip buyers will eventually have to exit their positions as no gains were made since we did not continue rallying.
take a look at the 60 min chart for the past 3 days. This is textbook consolidation and absorbing buyers to continue the previous move.
ReplyDeleteof course I could be wrong but this is the most exciting chart I have yet seen as a bear during this rally.
ReplyDeleteunless the rig the jobs report tomorrow... urgh...
ReplyDeleteFrom: http://www.stocktiming.com/index.htm
ReplyDeleteNot in disagreement with you. Just cautious:
"Are you Confused yet? Now the Fed and Government will do battle with the markets. The Fed's Plosser is saying that the Fed will have to aggressively raise interest rates because a recovery is occurring quickly. In opposition, Pimco's Bill Gross says with no more Gov. stimulus, the economy could have a double dip recession. Meanwhile, the 10 and 30 year yields were suggesting that a weak economy is ahead, or possibly even deflation. At the same time, Wilbur Ross is saying that 500 more banks will fail by the end of 2010. Do the math ... that is 1.03 bank failures per day between now and the end of 2010. Confused yet? We are seeing propaganda, market intervention, hope building, and market forces interact. Bottom line? The Fed does NOT want to see the market slip into a correction and retest the lows ... so they will likely try to intervene. This could make the markets seem chaotic in the next week or so, and stimulate some unusually high volatility swings ... not a kind of environment I like to invest in.
Remain in cash on the short side for now ... and come back to this page at 1:15 PM today when we will post an intra-day update relative to conditions. I suspect we could see the effects of some market interventions today from the Fed/Gov. trying to move the market up.
Our C-RSI fell to 5.2 which was way below the 10.8 level again ... but, it was still positive and testing the C-RSI support line."
I see a perfect symetrical triangle and ready to burst through up or down on 5 minute chart. what is your take Chris?
ReplyDeleteI 100% agree, the other thing to consider is market intervention has always been there, today, last year, last decade, as long as you can remember, but even that cannot stand in front of the actual money looking for exits.
ReplyDeleteIt may not happen now and here (by hear I mean the next 2 months), but its inevitable once the true economic picture comes out. Lets assume all those econimic reports and data is slightly adjusted to show a better picture, its kind of assumed it is.
When the consumer, that represents 70% of the GDP is not spending money, because credit is maxed out, income is down, unemployment higher, and no new credit available - eventually it will catch up with the markets, no matter how much higher we will go from here. Heck we could go all the way back to the old highs in the next few years - do I think its possible? nope, could there be another bubble being formed and created to shield us from the truth - yeap.
The govt manipulation boys are smart guys, they know what buttons to push and what markets to drive to get the desired effect, but that only goes so far - and after all, its investors and traders that have to make the final decision on what to do.
Scary thing would be another head shoulder to go in wrong direction like last time. Only the tight stops could prevent the disaster but then it could prevent you enjoying the drop.
ReplyDeletegood eye sam, take a look at the 15 min from the past 3 days, big drop, slow decline after the big drop, sideways yesterday, sideways thus far and ready to take it lower to continue.
ReplyDelete100.77 on SPY is as high as it can go, even if it breaks out to the upside on that triangle. Not higher. Putting my foot down !!!!! Now market you listen to me and do what I say ....
no head and shoulder this time, I know some other blogs are talking about it, if we see a close above 1016 again I will cover and stop trading this year (maybe some day trading only when time permits).
ReplyDeleteI agree. All the bad debt, which is socialized now has to be accounted for. It has not happen. The only way out is mild inflation but that is not going to sit well with bonds and ultimately equity. Consumers do not have borrowing capacity, materially they are content and looking for rainy day so there are no drivers other than inflation for consumer to spend.
ReplyDeleteI just bought my first futre contract--one only as the start. I meant sold. I am learning TOS platform we bears wisely have become cautious.
ReplyDelete997.75 and stop at 999.75
let us go 990-980
Here we go It finally broke 50 sma. we should at least see 992 or more. Chris, any thought?
ReplyDeleteI am tempted to buy some DZZ to short gold.
ReplyDeletecongratz sam =)
ReplyDeleteon the gold, I would probably wait for a sell off first, then let it retrace back up and go short. Thats what I am thinking =)
we may get another spinner today. Do not expect the LOD to be broken.
ReplyDeleteFYI: mole at evil speculator had brought up on interesting topic on todays options premium price changes. I was looking at my options earlier and realized I had lost a lot of value with SPY at the same levels and VIX only down a small amount.
ReplyDeleteAs I ma both short via futures and options, my options have decreased 10 times as much in value today as my futures position. 10 TIMES !!! Thats huge, never seen anything like this before and the only thing I can imagine is that they are trying to drive your average price down in relation to SPX. Last week my options had an average of 1018 on SPX, today, they are much closer to 1008-1010. Thats a huge decrease in premium for no change in time, price and volatility.
FYI this had happened after the morning drop when we slowly started grinding higher.
ReplyDeleteI raised my stop to only 0.25 loss. Does that mean it is good buy for the puts, of course at your and evil's loss. I will wait until 1008.
ReplyDelete20 sma just crossed down 50 sma. it should yield few points.
ReplyDeleteI really do not like the look of those spinners. I'm a scardy cat...
ReplyDeleteChris, a technical question. Scgwab platform did not allow stop loss below your purchase price. In the Ftuture I am able to put below the purchase price so I can exit with profit. Is that how it works? I raied my stop to 997 and was in at 997.75
ReplyDeleteyeah :( its unfortunate that you have to take much larger risks then in the past to be able to participate and make some money.
ReplyDeleteBut, days like this, or times like these allow you to strengthen your skills and remove emotion from the game. Be patient, wait for the right entries, and manage your position properly.
Sam, not sure I understand, you cannot put a stop loss in the reds? Meaning you are short 998 and stop loss at 1000?
ReplyDeleteYou should be able to put your stop anywhere above the current price (if you are short)
ok time to drop now. Lets see if we can make it to the LOD =)
ReplyDeleteI sold 997.75, with stop loss at 99875 it went to 995 so I raised the stop to buy at 997.00. so I would be 0.75 in green.
ReplyDeleteSchwab in equity would not allow the stop loss below 997.75 like I am able to do so here in the future. as i am typing I should have been stoppedout but it did not. so i manually close the position. something wierd happening. closed out with lunch money at taco bell.
Interesting comment from a blog:
ReplyDeleteSo far as of this second, I'll take all the up days like this that the market wants to throw at me. If its the start of P3 its following the script so far in terms of up day/versus down day price,breadth and volume. Its only day 3 so we don't know anything and shouldn't read anything into the markets actions as of yet. Its all fantasy until I see proof, I still want to beleive in an alternate wave count even if this is the C wave of an ABC from 10/07 highs.
Nobody alive has seen a primary wave 3 down before.
P3 is beyond our living memory and our comprehension.
In terms of wave personality P1 was like Darth Vader. A P3, a wave on a grander scale, would be the equivalent of Emperor Darth Sideous arriving on his shuttle to personally oversee the treatment of wall street the FED and the Obama administration.
@ 12:59 PM today
ReplyDelete100.77 on SPY is as high as it can go, even if it breaks out to the upside on that triangle. Not higher. Putting my foot down !!!!! Now market you listen to me and do what I say ....
HOD: 100.77
Holy crap, thats a bit scary .... I guess the market listened to me. Got to pat myself on the back sometimes for a good call =)
Rough day, ate through my options premiums like never seen before. Down quite a bit today.
Barely a 1% up day and look what it did to my puts
ReplyDelete[SPY] Oct 95 Put -20.56%
[SPY] Dec 85 Put -11.05%
[SPY] Sep 100 Put -26.14%
[SPY] Mar 70 Put -10.61%
[SPY] Mar 65 Put -10.11%
While the opposite calls are barely up half of that.
I am hoping your comment here would come true as well :) "Based on what I am seeing here, sustained rallies above 1000 are very unlikly. I would not be surprised to see one last push up to 1003-1004 and then fall very strong. Keep in mind this is still a very narrow range we are trading in with attempts to push the market higher as we do not have enough sell volume once we get down to 992. As we are making lower peaks the chances of a break become more and more likely."
ReplyDeleteThis comment has been removed by the author.
ReplyDeletewhile we did get this push up that we were expecting, its very unfortunate to have this be the close price for the day, making this a possible bullish reversal day (strong down bar, spinner, spinner HOWEVER close price above open price).
ReplyDeleteCombine that with the option premium trickery today to drop average price on options a lot lower (in comparison to SPX). Anyone who was lucky enough to get into puts last week with a decent 1020 average now has their average price reduced below 1010 (yes 10 spx point premium drop) so any rally towards 1016 may cause many bears to cover and exit out of those puts. Why is that important? Think about the big money guys, the put writers, they started selling puts last week and now are stuck with a loosing position with huge risk.
So now a rally to 1016 will make many weak bears exit those puts giving the put sellers a nice and easy way to cover.
This makes perfect sense. Put writers on a low volume day before the long holiday could esily paint the tape and option premiums. far away puts should not be a worry though as VIX will pop up so will the premiums.
ReplyDelete