Monday, July 6, 2009

A Morning Test of the 200 day SIMPLE Moving Average

As we've been stating for over a month, it's a strange time as we are dealing with 2 very different "pictures" based on the use of exponential or simple moving averages. But using the simple moving average, we tested the 200 day long term trend line this morning and thus far have held up. I covered part of my Potash (POT) short from Thursday and while not adding anything to the long side am waiting to see how things develop. As I pointed out with Monsanto (MON) this morning there are a lot of charts so crunched so quickly they are overdue for an oversold bounce. It might be "dead cattish" but it will still be a bounce.

If this 200 day does not hold, S&P 880 beckons (others are using S&P 875). Either way this is the lower end of our long held multi month range so "buying the dip" has been the trade that works down here, and until that pattern breaks traders will continue.

In a bigger picture short of way, I'd like to see a bounce here to begin developing a sturdy short side of the portfolio (individual equities) - I have a handful of limit orders for shorts at prices 5-7% above current levels in some names. A bounce here would be fine within the context of building a "right shoulder" and in fact, I wrote last night in the weekly summary I would expect one midweek since some sectors (i.e. reflation trade) fell so far from any moving average in such a short time.

Still monitoring but that's the thought process here - a break below S&P 875-880 obviously bearish but until then neutral to "buy the dip" short term bullish otherwise. Just not ready to act on it until the computers rush in. On the flip side, you can see the slope of the 200 day simple moving average... it won't take long to be below the 875-880 levels, so the next time it is tested it will actually be below areas people deem very important.

ISM Services came out to be a decent report this morning but strangely the market shrugged it off... another potentially poor intermediate sign as "good news" is being brushed off whereas 2 months ago even "bad, but less bad than in the past" news was being embraced.


p.s. compelling story about Goldman Sachs quant trading architecture ALLEGEDLY stolen from a previous insider. No wonder the market has been acting so rationally the past 2 weeks! I can only imagine if there is any threat to their proprietary tactics they had to shut down and re-assess... ZeroHedge is reporting program trading was up to an astounding 48% of all trading last week (40% the week before which was astounding in itself!) - but Goldman was nowhere to be found last week after dominating the program trading for months.

Just amazing what is going on under the surface of this market - if we only knew half the things I am sure we'd be astounded. Computers trading with computers is now HALF the trading, and Goldman went from top player to nothing in the span of a week. Now we see why. I cannot wait for the true story for this all to come out in the months to come.

Short Potash in fund; no personal position

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