Tuesday, April 27, 2010

Now That's a Failed Breakout

It always is interesting to see how certain news, ignored for weeks or months on end, suddenly matters.  Today Greece and Portugal suddenly matters again?
  • Stocks have sold off sharply following the downgrade of Greek and Portuguese debt by Standard & Poor's. Broader market weakness has been underpinned by the downgrade of Greek debt to junk, and the accompanying downgrade of Portuguese debt two notches to A-. That news has also put tremendous pressure on the euro, sending it to 1.3212, its lowest level in over a year.
Having lulled me to sleep and dulled my senses, that drop happened too swiftly for me since I was not watching at the time and now am trapped a bit.  A nice drop there from S&P 1211 to 1190 in a matter of 40 minutes or so.  I was going to stay "long & strong" as long as the 20 day moving average held, and here we are... in fact we broke below intraday for a few minutes there.  Yesterday's breakout to new yearly highs was a nice trap.  On the positive side, this introduces some trepidation for bears for the first time.

For now I am taking on big time water with my index positions (oh the joy of options when they work against you), and I'll have to figure out if I will make them realized losses or not in the next few hours. Looks like the days where one can buy stocks and leave the computer for 4 weeks in a row might have taken a break.  S&P 1194 is key for today, right now at 1197.  Will we pull another miracle off as we did last Thursday when a 1.5% drop was bought and the markets actually ended green by end of day?

Watching and observing for now...1190 was the low last Thursday as well and 1183 the low the Monday after Goldman Sachs, so closes below these 2 levels would potentially be trend changers. Too early to get bear paw hopes up as it has been futile for months.

EDIT: To cut down some risk exposure I am selling half of TNA ETF and SPY calls on this bounce near S&P 1198.   This will obviously lock in some bountiful losses (4% on the former, 35% on the latter), but in case a real market returns (one that goes both up or down) will save some pain in the future.  If we "V" shape bounce right back up, it will have proven to be a bad move.   Normally these should have been sold (at least the SPY calls) no worse than S&P 1210. Live by the sword...


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