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Posted by Martin September 12, 2011
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Market on a roller coaster

Market on a roller coaster

Interesting trading these days! I entered some bearish trades last week on Thursday by buying puts on SPY and XLE, when both equities were showing weakness and unwillingness to continue going higher. I collected some nice profits on this three day downtrend ($248.5 on XLE and $254.5 on SPY), total profit of $503 within a period of three days! But do not be excited (as I currently am), because Mr. Market can take those profits quickly out as well. At this point I was able to ride it with the trend although the trend was (and still is) quite bumpy. I decided to sell when I saw the last hour rally and after-market trading data confirmed I was right to take the money off the table. Of course, that doesn’t mean anything as well. Tomorrow, the market can go down again and if that happens I may go back and buy puts back to ride it further down.

Change The Way You Trade Forever

The point was that the market was supposed to close under the pennant lower line (see the magenta lines showing the pattern). Well it didn’t happen. The last hour rally kept the market within the pennant. That may be a beginning of a new trend – a bit bumpy, or still a bearish correction undergo.

SPY
Note: this chart is from Sep. 09, 2011

Where will we go? I still think, the market will show more weakness and it will go down. If it breaks this pennant line (the lower diagonal line on the chart) on higher volume, we may see another drop in price which will be equal to the length of the pennant poll (see the perpendicular magenta line to the two diagonal lines). And that translates the drop of almost 100 points! Thus we will go down to $100 level (SPY) or $1000 level ($SPX). I will wait for confirmation and plan on going for this downtrend.

Right now I am not sure which direction the market will go. It didn’t have enough strength (or weakness) to break down (and therefore I decided to sell my puts) and it also doesn’t have enough strength to go higher, so let’s wait!

From this perspective I can see a positive thing on $VIX.X showing elevated volatility. That can indicate more action on the market. However, since it is elevated, it may also point to a situation of calming down the entire market (why? compared to Europe, the US looks like a healthy safety heaven). If you take a look at 2010 correction in the middle of April, it took 18 weeks. Currently we are following the similar pattern. We may be going thru the similar correction and we have just 8 weeks behind us. That’s why I am cautious to say where the market will go and try to enter positions only when I am sure about the next step. As the rule say: if in doubt – stay out.

Happy trading!




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Posted by Martin September 06, 2011
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The market with different signals – how to trade it?


Last night I decided to wait for the market to show me how it would trade. So I waited until the morning for the first five to ten minutes to see. My thinking that since the market would open already 2.5% lower would not provide too much space for further downtrend showed up as correct. SPY opened at $114.39 and since then it was growing and by the end of the day it erased almost all losses. Maybe I could open some call positions, but I wasn’t sure which way the market would go.

And there is a rule – if in doubt, stay aside. So I did.

Right now I can see the market showing a few different signals which is preventing me from opening new positions:

Signal 1 – we are finishing an ABC correction.

Signal 2 – we are forming bearish pennant

Signal 3 – we are reversing the trend and creating new higher highs and new higher lows – a new bull trend is beginning.

Well, which one is correct now?

See the chart below in which I am showing all three possible scenarios:

SPY

I marked the ABC correction with letters. I am also showing the pennant with magenta lines and the new higher highs and higher lows are shown with green and red arrows respectively.

So how to trade this? I still do not know where the market will go and thus I am waiting for confirmation. If the market breaks lower (breaks the pennant) it will be a sign that we really finished the ABC correction and we will continue further down (which I think we will go). If however the market turns back up and continue into new higher highs, I think we may see another bullish trend. So I will be waiting.

Basically if SPY breaks below $114 and $112 levels, we will continue in a downtrend, otherwise we may see a new bullish trend.

The same thing is with Chinese FXI ETF which I am ready to short (buy puts), but only if FXI breaks down below $35.90. If FXI continues up I will wait for the next opportunity.

Happy trading!




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Posted by Martin September 06, 2011
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How to trade today’s market?


Last night I wanted to buy SPY puts right at the open of the trading session, but then when I saw futures pointing to market opening 2.5% lower I decided to wait and see the action before jumping in. If the market opens that deep, it may stay flat or actually rise. And sure enough, at the open, the market was rising. Jumping in it right at the opening would cause me losing money from the beginning. So I decided to wait and open a position at the very end of the trading session if at all. Let’s see, what the market has ready for us and wait. I also closed my XLE position this morning with a very nice profit ($290 per contract). Now I will be waiting for the last 15 minutes of the trading and then I will see.

Happy trading!




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Posted by Martin September 05, 2011
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SPY heading to a deep fall at opening


Futures are pointing to a deep decline of the market due to renewed fear over the European debt crisis along with bad economic data coming from the US. When markets are gapping sharply down it is hard to trade it. Will it open low and continue even lower during the day or will the day erase the loss? That’s the million dollar question. At this point the futures point that SPX should open at around $1142.7 (SPY would be at $114.27) and that is a very deep loss. Will the market erase it during the day or will it go further down to retest its support at $112 level? Ultimately I believe the market will go even lower and hit the mark of $1000 level. Of course, not during one day, but during some extended period of time.

Based on the market opening and early trading I may re-enter my put position on SPY and ride this market down. We will see in the morning.

Happy trading!




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Posted by Martin September 02, 2011
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Profit taking…


As I mentioned this morning (and yesterday) that I would consider some profit taking. Since the market gaped down quite deeply I decided to close my puts position on SPY and take nice $174 profit per contract. I also closed my bear put spread on IBM and collected around $100 profit. Actually $80 after commissions.

Change The Way You Trade Forever

On Tuesday the market may rally back and erase some of today’s losses. Overall I am still bearish, so if that happens I may re-enter my put positions on SPY. If the market continues falling on Tuesday, I may re-enter as well. I still think that the market will go lower (to $1100 – $1000 level ($SPX)). We will see.

Happy Trading and a happy holiday!




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Posted by Martin September 02, 2011
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Unemployment report showing no new jobs!


Market (SPY) gaped down at open and extended already bearish trend this morning. Although by the end of the day the market may rally back. It looks like the A,B,C correction has been completed and now we will be running down. QE3 is now more likely to happen, although that may be good for the market, but overall bad for economy (inflation).

This morning I may be trimming some of my bearish positions taking out the profit.

Happy trading!




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Posted by Martin September 01, 2011
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SPY on the downhill road


Although the jobless claims were in line with expectations as well as manufacturing data the market failed to go thru the resistance and turned down. Europe’s manufacturing data disappointed and tomorrow we will have Labor data out.


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The ISM Index remained above 50 number, and although it is trending lower, we most likely will avoid double dip recession.

When the data came out, the market rallied, but the rally faded quickly and and $SPX (SPY) finished in red numbers with a loss of 1.20%. That confirms my expectations that the market will either trend in sideways range, or it may even go lower and re-test $100 level (SPY) or $1000 level if speaking about S&P 500. Ironically better than expected numbers may send the market lower. Let’s see what the next couple days bring up.

Today I purchased my SPY Put position expecting the traders will also get rid of their positions tomorrow to avoid holding over the extended weekend (Monday is the Labor day and markets will be closed). No one wants surprises from Europe over the weekend and that may send stocks even lower. If I make some nice profit on it I may close this position and reopen on Monday.

Happy Trading!




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Posted by Martin August 31, 2011
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Why I consider the market status in correction although the market rallies?


My colleague at work asked me that question when we discussed where I think this market will go. The answer was simple. SPY broke down from head and shoulder pattern on a very high volume and suffered some sort of a mini crash since then. It basically created a lower low and corrected to a lower high. Thus I believe that this rally is just a bearish correction. There fore I consider this market still in correction although in a very short term we have a rally.




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Posted by Martin August 31, 2011
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Will the Greece debt drag the entire market back down?


Although there are many other aspects which will affect the next movement of the market such as weak economy, job data this coming Friday, ISM report (PMI index) etc, the Greece debt and the entire Eurozone debt crisis seems to be coming back. As probably every one knew, this issue hasn’t been solved at all, just postponed. EU is kicking the can down the hill and everybody is lying to themselves. A few days ago the market (SPY) raised sharply on news of Greek banks merging and thus providing some stability (if I remember it correctly).

However today the Greek parliamentary (independent) committee issued a report stating that the Greek budget and debt is completely out of control. All governmental provisions to stop the bleeding budget are failing to improve public finances of the country. The report has been issued at the same time when the EU experts are visiting the country to review how Greece is following all conditions given to them for releasing another part of the international loan. So another wave of fear may come back to the market and we may experience another sell off.

When you look at today’s market action, we saw a sharp growth in the morning. The market gaped up and continue rising for the first 30 minutes. Since then, it continued falling. Even though it closed in green, the overall picture is clear. We are probably topping this rally correction and turning back down. It may happen either tomorrow or by the end of the week.

I sold my calls on SPY yesterday and now I am waiting for the next move. Whether it will be Greece, the whole Eurozone debt crisis or domestic economic issues, the market is showing signs of buyers being leaving the market.

If so, what would be the next expectations? There are two scenarios right now. We may be now trading sideways in a range between $124 and $112. So the next move would be down to re-test 111-112 level. The second scenario is that we break down through the $111 resistance and and head further down. My expectation would be down to $100 ($SPX @ $1000).

I am going to wait for confirmation that the market goes down and if that happens I will be reversing my trade to be bearish on SPY (as well as right now I am overall bearish on my other positions).

Happy trading.




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Posted by Martin August 22, 2011
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Market bouncing on its support, will it survive?


A few days SPY was bouncing on the $112.5-ish level. When looking at $VIX which is at the very elevated levels and considering today’s price action at the very end of the trading day (see the volume and price on any daily chart) I would assume the market was showing some exhaustion on selling. Therefore I decided to close my puts position as I mentioned in my previous post and now I will wait for the next move. Will the market break through and fall down or will this support hold and we move up? I do not know. From the technical analysis perspective we are due for a bounce. If we look at the chart, we are probably going thru “A,B,C correction” in a bear market. We accomplished the “A” wave and now we may be touching a “B” point. If that is correct, the next move will be up to some $127-ish level and then we resume the downtrend.


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Why?

Let’s take a look at the nearest trend, let’s say 6 month chart. There is a plenty of traders who purchased SPY at $130 – $136-ish levels and these people are waiting to get break even. When the market gets there they will sell. It is a large overhead supply waiting there. Considering that we are in bearish market, more downtrend is imminent.

Well, of course, it may not happen and tomorrow the market may break thru $112 on high volume and continue south. If that happens, we will see a fall all the way down to $100 level and in such case I will buy SPY puts back. Now I decided to sell to take nice profits and wait which direction the market decides to go.




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