Thursday, May 6, 2010

Yesterday's Head Fake Over the 50 Day Moving Average Ruined a Nice Index Trade

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I am mostly "out" of the market right now with a less than 15% long exposure but I am still chaffing over yesterday's lost opportunity. In the morning after the market gapped down and then rallied, I started first with a more conservative short using TNA ETF around S&P 1166. S&P 1171.50 was the 50 day moving average so I wanted to have something short against my much larger long position (I was about 20% allocated yesterday morning). Then as the bounce continued I went more aggressive with SPY puts around 1170.50. Since these options can lose (or make) a lot of money in a short time if the market is volatile, I vowed to sell with no questions asked if S&P got over 1172.50.



The market drifted around S&P 1168-1171 for an hour or so ...held down by the 50 day moving average. Things look fine. Then they/it spiked the market through the 50 day causing me, and I am sure others who fear the now almost constant "V" shape bounce on no news. The S&P peaked just under 1176. Then rolled right over.

I let go of both positions for moderate losses, but by the end of the day both would have been profitable. 10 S&P points on a near term SPY option can create a windfall. With the propensity for futures to be marked up 80% of the days since March 2009 I doubt I would have held them overnight so today's action would have been icing on the cake but most likely I would have not participated.

Reviewing my trade mentally (which I think is useful to everyone - especially your "losers"), I don't think I would have done anything differently but truly that 45 minute spike crushed a nice idea.

As for today, the S&P 500 has now broken below yesterday's lows and as I believed yesterday the intermediate term still seems lower. I cannot really find any support other than January 2010 highs ("1150") on the chart since the move up was relentless and without pause, creating very few natural support areas. If this move continues down, that will most likely be an area to make a stand for the bulls - we are most likely oversold "soon".

EDIT - as a reminder, below S&P 1150, next areas of importance... (a) gap #1 S&P 1124, (b) 200 day moving average 1100, (c) gap #2 S&P 1078. But for today I'd be tickled just with 1150 since I want a win of any kind.

I am going to (once more) attempt a SPY put position here but since my hand has gone ice cold for the past few weeks, my position size each time I am in a bad phase gets smaller and smaller. That way if the ice continues, the consequences are smaller. This too shall pass - it's been a very good 11 months of almost non stop wins since Jun 2009 and getting slapped around by the market happens from time to time.

EDIT 11:20 AM - that was quick, here we are in the S&P 1151s. Now it will be interesting to see if 1150 has any meaning and provides a support for bulls.

Long SPY May 115 Puts in fund; no personal position

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