HAPPY NEW YEAR!

First of all, business. Check this out:

As you can see, today’s tape changed quite a bit the scenario, enough to put me on alert and cover my positions. I just don’t feel comfortable with my short positions and when this happens I just close them – since I usually have only a couple of opened positions (just my style). The close above DMA 7×5 (the green line) is quite threatening to a sell-off outlook in the next days and the spike above 90 (SPY) gave the action in the last days a consolidation look. As I said before, we should have our attention switched to Stochastics – a faster indicator than MACD, especially in sideways markets – and today it gave a buy signal. As I’m not confident keeping my position through Friday or Monday, I closed it and will be looking for a better entry point. Also, it seems that the spiral of the correction from 2007 top to 2008 bottom (on Nov 21st) is getting weaker, which might mean that the first part of the correction is over. Plus, I didn’t want to start the new year with a position I’m not happy with, I want to kick it off with a fresh mind. That was the whole rationale behind my decision.

New year, new opportunities. This market is full of them.

One last word.

It’s been an incredible year in so many ways for me and – I believe – for all of you. The world we live now is different from the world we lived in the last minutes of 2007 and I think it’s going to be a completely new world at this time one year from now. It was just great to witness historic events not only in financial markets but in politics as well, as it was amazing to interact with all of the readers in this blog and the other blogs I usually read.

Thank you all and happy new year!

Inside Time Window

First of all, I’m terribly sorry I couldn’t post an update in the last two days. End of the year is one of those periods that I hate, because people go insanely anxious to be in a special place for New Year’s Eve. I was in Rio, where my girlfriend (oooops, I mean, my wife! – I still have to get used to it, as I still have to get used to the wedding ring – I fidget with it so much that it looks more like a “finger hoola-hoop”) lives and we wanted to see the fireworks in Copacabana, one of the most famous New Year’s in the world. People say it’s amazing, and I believe it is, but Rio gets crazily crowded and more than two million people flock the beach of Copacabana to see the show on the 31st. Call me what you want, but that’s not the kind of thing I most love to do. Plus, a couple of days ago my wife (now I got it right) decided to leave her apartment for some friends so we had to go to my mother-in-law’s place. My mother-in-law is just lovely and she makes the most delicious waffle in the world. But, she had just cancelled her broadband connection. In the first day I went to her shop in Leblon to update this blog, but it was a weird situation. In the second day I suggested to my wife to leave Rio and spend New Year’s Eve in Sao Paulo, which is one of the largest cities in the world, but since there’s nothing so much attractive about it there’s no tourism in this period of the year. Yesterday we hit the road during the day and, after around 6 hours, we arrived and now I feel I’m in paradise. All that usual End of the Year anxiety is gone, I’m fully back to the market, to the analysis and to my dear readers. So, let’s talk business:

For those of you that asked if the outlook of a sell-off into the New Year is still valid, the answer is in the chart above. Two things to notice. First: although this is the end of the year and it’s normal that volume shrinks, there’s a clear downtrend line in volume originated early December. Second, we had some sort of a rally yesterday – associated with the extra bailout given to GM – but the indicators didn’t change much. Two consecutive closes above DMA 25×5 weren’t enough to turn MACD and Stochastics positive. However, market has been trading sideways for almost a full month so MACD gets a little funky and less reliable (it’s getting flat and close to zero). In this cases, it’s better to switch our attention to Stochastics, which is better to anticipate movements in sideways markets. And Stochastics is still pointing down. Therefore, outlook hasn’t changed.

On the other hand, since Dec. 17th, VIX has dropped around 20% and my puts got beaten down to hell (losing also time value). Yesterday, at the end of the day, I decided to get rid of them with a 40% loss, but I’m taking this opportunity to load my basket with some ultrashorts (basically TZA, SKF, QLD), which leave me less anxious.

Remember that, as far as 92.43 is not breached, the bottom scenario is valid until the 5th.