Luna $ Ticks

September 2, 2008

Conundrum

Filed under: Trading SPX SPY — moontrader @ 3:22 pm

For one week or so I’ve been talking about September 2nd and a top on this day. I was hoping we would have a top above August 11th (SPY 131.51), but it didn’t happen. Instead, SPY peaked at 130.71 a couple of minutes into the opening and slid down through the rest of the day, closing at 128.06.

At the opening I raised my stoploss to 129, which I considered a number dissonant to a rally up to 132.55 for today. Obviously, I was kicked out, but with a 30% profit – bad if considered that, at a certain point, I had 80%. On the other hand, I kept a strategy, which means a set of criteria, a stoploss and a target – time is also important sometimes. That’s the most important thing: plan your trade according to a strategy, and stick with it. Remember: trade an amount you feel comfortable with. Subdue your fear by fighting your greed. Neutralize your emotions and keep it rational to go through numbers, statistics and indicators if your trade goes wrong. And learn to wait.

Waiting is key in this kind of volatile and tricky market, specially when the trend is not clearly defined, as is the case. Many people have been talking about another leg down well below July’s bottom of 120.02 (SPY), and even that I believe that will happen sooner or later, it’s important to wait for the right moment to short, so your position won’t be eaten up by Theta in case the market goes sideways (I suppose most people here trade options, which provide limited risks – unless you’re one of those crazy guys selling naked). Today’s rally fizzled throughout the day and many might consider a sell signal. I still need a confirmation of that, because as I said, I don’t want to see my position devalue with time in an undefined market. Here’s what’s going on according to my criteria:

Simple. MACD delta turned negative, however in positive territory. Today’s drop still unable to give a sell signal in my Stochastics. We closed slightly below DMA 7×5, but above DMA 3×3 and 25×5 which, by the way, are converging on 127.70. Plus, we closed more or less on top of the dotted trendline.

Just a word about DMA 25×5. The area marked with a green rectangle is somehow a trend reversal (or pause) area: after a consistent trend down, SPY finally broke DMA 3×3 and climbed towards DMA 25×5. As it touched DMA 25×5, it turned weak and, in the following days it struggled to finally close above it while MACD raised to almost positive values (delta definitely positive). That can be considered a sign of a trend reversal. However, once DMA 25×5 is broken, prices have to quickly fly away from it. Instead, as you can see in the red rectangle, DMA 25×5 kept being revisited in the last couple of weeks. Although other indicators show a short-term uptrend, prices trading close to DMA 25×5 means that the trend is weak.

I know, it’s tempting to short but I won’t do so yet. Let’s catch the movement as it happen instead of putting up with suffering days of indefinition. The market is getting closer and closer to a Conundrum.

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12 Comments »

  1. Nice writing style. Looking forward to reading more from you.

    Chris Moran

    Comment by Chris Moran — September 2, 2008 @ 3:37 pm | Reply

  2. Hope you had a good longweekend Moontrader,

    I agree with your comments. I do note however more than half of the US equities which are on my short list have become trades as per my rules. I had a good session being long SPx500 futures into the open, took profit @ 1295, short gold and silver closed out for profit, short corn (still in) short platinum (entered last night), plus short a few US and Aussie companies.

    Turn day wise I have a major gold / PM turn on the 5th 6th both lunar, square of 9 and astro cycles. I will be looking to get long Monday on gold and silver if we have a waterfall into the weekend.

    I think today panned out pretty well according to plan, it just didnt go as high I we thought. Dont forget Non farm payrolls on Friday, even with manipulation the numbers can’t be good.

    Prosperous trading

    Whitto

    Comment by Whitto — September 2, 2008 @ 4:57 pm | Reply

  3. Is your signal to go short therefore based on the price closing below DMA 25X5?

    Comment by Adam — September 2, 2008 @ 6:38 pm | Reply

  4. Hey Adam,

    My selling signal depends on a series of aspects. Closing below DMA 25×5 is extremely important, along with MACD pointing down and, better, in negative territory. Stochastics becomes important when the market is trading sideways, since it can tell you what the short-term traders are doing, and anticipate a sharp movement. As you can see in the chart above, Stochastics has still a buy signal and we closed above DMA25x5. In this moment I wouldn’t go long but I wouldn’t short as well. I’m waiting for that opportunity where I can see with more confidence where the market is heading.

    Comment by moontrader — September 2, 2008 @ 7:27 pm | Reply

  5. to get in during “movement” of the option which month would you trade ? and what S&P options do you find the best?

    Comment by bill108 — September 3, 2008 @ 7:45 am | Reply

  6. Bill, it depends on the target, stoploss, and how confident I am in a trade. I’ve placed successful trades within 2 days of expiration, OTM options which became ITM, high risk but high profitability. But in the moment I think I’m going to get October options, since I believe the next move might last something around 1 month (as soon as the market defines a trend). I usually get SPY options OTM, but it’s important that they start to give some positive results right away. I don’t like the idea of marrying losing positions as many people do. It’s incredible but, statistically speaking, people feel more “comfortable” with losing positions than profitable ones.

    Comment by moontrader — September 3, 2008 @ 7:53 am | Reply

  7. thanks
    appreciate your response- I’ve been burned by buying too soon and holding too long -will give your method a try as the risk management is something I need a lot of work on

    Bill

    Comment by bill108 — September 3, 2008 @ 8:34 am | Reply

  8. it looks like the spreads are much better on the spy than the oex also open interest is good

    Comment by bill108 — September 3, 2008 @ 8:43 am | Reply

  9. This may be the day we have been waiting for to break the 25dma. Very weak market

    Comment by Jigsaw — September 3, 2008 @ 10:49 am | Reply

  10. Ok, I just shorted, small position. I bought some SPY September 125 puts and my criteria is: we’re trading below DMA 25×5, below the dotted trendline, Stochastics is giving a sell signal around 0, MACD is pointing down (although it’s close to zero and the reading is not so reliable – I prefer right now Stochastics). By the end of the day I need to see if this scenario is confirmed or not. If, by the time of the closing bell, we’re well above DMA 25×5, then I’ll close my position. My stoploss would be around SPY 129, however that’s not a precise number, since I’m judging the market by the indicators along with DMA 25×5.

    Comment by moontrader — September 3, 2008 @ 10:49 am | Reply

  11. Hey Jigsaw, I agree, we posted at the same time.

    Comment by moontrader — September 3, 2008 @ 10:59 am | Reply

  12. I would like to think Great minds think alike… Thanks for keeping us up to date Moon. I bought some BIDU puts this morning, broke the lower trend line yesterday. The China markets still look very weak, even more than the US markets

    Comment by Jigsaw — September 3, 2008 @ 1:49 pm | Reply


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