Thursday, September 2, 2010

Bookkeeping: Selling Remaining SPY Calls as 50 Day Simple Moving Average is Reached

The technical nature of this market remains remarkable; as we've been mentioning for a few weeks the key signposts have been S&P 1010, 1040, 1057, 1070 - and once you breached that upper level you were staring at the 50 day simple moving average which is a moving target.  As of yesterday it was S&P 1081 and of course after the "2 step" rally yesterday (first step premarket surge, second step ISM surge) the market traded sideways for a good 4+ hours, saddled right underneath the 50 day simple moving average, and closing right at it.   It's computerized perfection.

(I'm using simple moving averages in the chart below)

[click to enlarge]

Once I saw that ISM number yesterday I bought a 3% allocation of SPY calls (September 107s) simply to try to get some gains in a cash heavy portfolio, and to offset some losses from a 1% SPY put position put on the previous day.  It worked out far better than I planned, as I did not expect 1081 (the target to sell these calls) to occur within hours.  But yesterday was the definition of a 'trend day' - once the market got started in one direction there was no changing it and no chance of an intraday reversal of any sort.  Those are nice markets to "pile on" into for an intraday trade but the action is much quicker now then similar days in 2008 and 2009.

This current market gives you no time to react, it's either 90% up days or 90% down days (meaning 90% of stocks are going in 1 direction, and frankly the individual equities you own are relatively meaningless).   Instead of a 6-8 session rally to get us from 1040 to 1081, it happened essentially in 1 session + a premarket.  That was the "easy" trade but more than half of it happened overnight, and the rest between 10 AM and 11:00 AM.  So all the action was concentrated in very small amounts of time.

[click to enlarge]

Intraday chart from Wednesday

Now what?  Who knows - based on Friday's labor data we most likely will experience the exact same thing, either up or down.  Flip a coin.  Based on regional Fed surveys the ISM *should* have weakened - it did not, hence everyone was surprised.  Based on weekly jobless claims, we should have another putrid month of employment data, we'll see if that rule is also broken.  (somehow I think not)

With all that said, I sold out of half of that 3% allocation of SPY Calls around 1079 yesterday and will let the rest go first thing this morning at whatever the price.  They did their job.  Less important economic drivers come next week so the market should be less volatile for a while.

No positions (once the market opens)


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