Luna $ Ticks

September 11, 2008

IMPORTANT: New Strategy for the short-term

Filed under: Trading SPX SPY — moontrader @ 11:31 pm

I know many of you who follow this blog will be disappointed with what I have to say, but it’s important to recognize when things are not going the way we predicted. After the market close I’ve pondering a lot about the last couple of days and, although SPY still didn’t show a clear sign of a trend reversal, various other indexes are quite worrying for the bears, especially IWM and DIA. In this moment I’m in Brazil and also following IBOVESPA, and it’s another index quite bullish: it had a 4.5% drop a couple of days ago and it already erased the losses after two straight days of rally. I’m just having an uncomfortable feeling with my position.

If the big fall was to happen, then we wouldn’t have such rallies in the last couple of days. Fannie Mae and Freddie Mac rescues might have affected the short-short term in fact – or is it just a natural market movement? In any case, I would strongly suggest caution in this moment.

Here is the NEW STRATEGY I have for myself. Today, 09/12, no matter how the market goes, I will be closing my short positions (actually my puts) and re-entering them after one of these two conditions is met:

SPY above 131.61

SPY below 121.60

There’s a good chance of a strong rally in the next week or so and the date I mentioned in another post – 09/19 or 09/22 – could be a top instead of a bottom. As I said before, these dates I come up with are reversal dates, not necessarily a top or a bottom.

I am writing this post very late in the night but I just wanted you to know what my thoughts are. Forgive me if I’m not clear in some points, but I guess the new strategy is pretty clear, and that’s the most important thing. I’ll be editing this post in the morning, just to clarify things up.

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7 Comments »

  1. I just eliminated my position with a surprising 30% profit. I also got a little position to the upside, in case SPY does rally to levels above 130 with a stoploss at yesterday’s bottom (121.61).

    Comment by moontrader — September 12, 2008 @ 8:45 am | Reply

  2. Instead of editing the post above, I’ll just add this note, which I deem very important to the short-short scenario, something to be noticed:

    What really concerns me is this: the market stopped falling at SPX 1211.54. July’s low was 1200.44. August high was 1313.15.
    1211.54 – 1200.44 = 11.10
    11.10 + 1313.15 = 1324.25 ==> which is close to that 1325 level I have been talking about.

    Comment by moontrader — September 12, 2008 @ 9:06 am | Reply

  3. FWIW I have looked for patterns similar patterns to those since May on the DJIA for the last 100 yrs. I have found four that are strikingly similar – June-Aug 1930, May-Oct 1969, Oct-Feb 1973 and Aug-Dec. 1981.

    All of these began below 200 day sma, had a significant drop of ~20% to oversold territory, bounced around under 50/200 day moving averages, testing and eventually breaking the 50 day sma 1-2 times, finally gapping below the 50 day sma with a large candle day, a few days of selling, then a pop back for a 3-4 week rally to test the 200 day sma before finally entering a brutal sell-off period.

    1969 was a bit choppier than the other three, with a new low set before heading up towards the 200 day.

    Based on this and some of my other analysis I too have blown out of all my shorts (nice profits although not what they could have been had I covered on the gap down) and taken some small long positions.

    Good luck!

    Comment by Michael — September 12, 2008 @ 10:01 am | Reply

  4. Hey Michael, thanks for stopping by and posting your thoughts. I’ll check those patterns you mentioned, and see if they apply to what we’re going through. If you look not far in the past, we might be repeating the pattern from January’s low to May’s top, but in a much much shorter time scale.
    Anyway, the important thing is to keep the mind open and be aware that ANYTHING can happen. It’s extremely important to realize the difference between “wishing” and “perceiving.” Sometimes we catch ourselves “wishing” the market does something, while our perception tell us something different. However, because we already have a position, we tend to disregard our perception and keep with the wish. It’s a terrible thing.

    Comment by moontrader — September 12, 2008 @ 10:11 am | Reply

  5. Thanks Moon for keeping us up to date. Part of being a good trader is being able to react to a change in the market and get out in time. I’m all in cash here waiting to see what happens.

    Comment by Jigsaw — September 12, 2008 @ 10:36 am | Reply

  6. >we might be repeating the pattern from January’s low to May’s top, but in a much much shorter time scale.

    that was Saturn0Jupiter trine what got you confused.
    Fractally we’re still in December

    Comment by Fork_Master_Serg — September 12, 2008 @ 11:24 am | Reply

  7. True, actually Jan-May 2008 was another I looked at that was very similar – forgot to mention it, probably b/c it was so obvious.
    BTW to clarify the third one was actually Oct ’73-Feb.’74 (this was actually the most similar one and I’ve been using it quite a bit to help me gauge this market).

    Comment by Michael — September 12, 2008 @ 12:54 pm | Reply


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