Wednesday, November 17, 2010

Bookkeeping: Covered TNA Short and Assessing the Market

I have covered the modest TNA ETF short for about a 2% gain from yesterday's entry as the market is most likely a bit term oversold in the near term.  Yesterday's move down caught me a bit off guard as I did not expect that level of selling intensity.  Assessing the market the S&P 500 has broken below the 200 week simple moving average, so I will be interested in putting on some individual short positions in the coming days.  If there is a lot of strength and buyers push the index back through 1192 and then through the gap created yesterday morning in the 1194-1197 range and back into the low 1200s then one has to reassess again, but for now I'm looking at a far more neutral bias with potential to be bearish.

Very nimble traders can be long from here and play a trade back to the low 1190s, but broadly speaking we have the 50 day moving average (1170) on the downside and the 200 week simple moving average (1192) to the upside so a relatively narrow range.  The stretch goal to the upside is 1197 which is where we gapped down from yesterday.  If one believes the past few day's actions is the first part of a larger move down any cursory bounce in this range, should be an opportunity to sell down long positions and then go short.   If one believes this was just a 3 day hiccup on the road to S&P 2500, then buy buy buy of course.  I lean towards the former camp simply because I don't think a 2.5 month move up is cleansed in 3 days.  But I am open to being wrong, as always.

I am hoping for a move to 1190+ where I can make some portfolio adjustments, and add some short individual equities on a bounce.  Then the dream scenario would be the next leg down to the 50 day moving average with an eventual break of that level.  In the ensuing weeks we'd then go fill the gap on the S&P 500 at 1090 and 1110, at which point I'd turn around and be "mad long" for the end of year rally.  If only things were that simple. ;)

200 week simple moving average

p.s. looks like the GOP win is putting a lot of pressure on municipal bonds as they seem to have been priced for bailout (CA, IL, et al) but in the past 2 weeks have been smashed upside the head as Tea Party reluctance to bail out anything that moves might cause states to face some reality in the years ahead.  One of the stories in the go forward as we continue to move in Banana Republic nature, is will the Fed end up buying municipal bonds to store on their balance sheet - i.e. deficit fund for states, since the electorate is starting to get very pissed about the non stop bailouts/stimulus/handouts/giveaways.  While the federal government can never technically 'go bankrupt' since we can print our money at will, the states have no such luck.  Hence they are no different than Greece, Ireland, Portugal, etc which are stuck in a system with a shared currency they can't devalue at will to pay off creditors.  There are so many governmental implied and explicit backstops throughout our system, there is no real pricing anymore - we can see that in the muni market, and the entire housing market is one big government agency at this point as well.

No position

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