Luna $ Ticks

September 15, 2008

Trouble Ahead

Filed under: Trading SPX SPY — moontrader @ 4:15 pm

Needless to say how weak the market opened today, so let’s go straight to the numbers I mentioned before. A couple of minutes into the opening, SPY hit 121.63 and bounced back. That was 3 cents above 9/11 low of 121.60. Which means that level was somehow significant:

[Note: today’s high is not properly represented in the chart, the bar high is bad data]

Towards the end of the day, SPY finally broke below 121.60 and quickly ran towards July’s low, breaching it in the last minutes. VIX also broke the trendline I’ve been showing:

VIX next stop is March’s peak, and then January’s. That should happen in the next days.

The next chart is just a follow up with my criteria:

Last Friday and Thursday the market closed above DMA 3×3, below DMA 7×5 and DMA 25×5, while MACD was negative. The trend is still negative… Duh!!! However, notice the DeTrend Price Oscillator reaching levels from which the market has bounced in the last 6 months. But still didn’t reach January and March levels. That’s what we want to see: DPO below January and March levels.

Here’s a devastated landscape of S&P500 right after the closing bell:

As you can see, a lot of debris.

To conclude, just a word about my last trade, which didn’t work out, but somehow made me happy.

Last Friday I believed the market was up for a bounce and I closed my short position with a small profit and quickly reverted it to a long position. At the end of that day I was naive (not to say fool) not to close the position. Naive not only because MACD was very negative but because it was a weekend and many things can happen in two days. Also, the second close above DMA 3×3 with MACD negative might mean a slingshot to the downside. Fortunately I was well positioned and, surprisingly, today at the beginning of the day I closed that position even (little profit minus brokerage = 0!!!). Here’s the trade:

BOT +XX SPY 100 OCT 08 130 CALL @1.13 NYSE, SPY MARK 124.12

SOLD -XX SPY 100 OCT 08 130 CALL @1.16 BOX, SPY MARK 122.67

Notice how weird this is: call higher, SPY lower. That’s what I call a high volatility market deformation.

My idea was to sleep over the weekend with that position expecting a gap up today and close the position at the opening. Forget about it. I was really lucky to close it even. What made me happy is that, once there’s a negative sign to my position, I enter in defensive mode and I tend to liquidate my position with whatever the market gives me. The market was generous enough to give me the opportunity to bail out with zero loss.

Anyway, for those following this blog, I mentioned in this post the strategy: short once we break 121.60.

I also mentioned before that the scenario of a plunge this week would depend on July’s low being broken between Friday and today, Monday. That’s what happened in today’s very last minutes.

All in all, I see a plunge happening in the next days and the possibility of an extremely significant bottom either on 9/19 or 9/22.

Good trading.

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11 Comments »

  1. You won’t believe this. On friday I bought some MER calls as a hedge. Needless to say, everything in my account was positive today.

    Comment by tradertom — September 15, 2008 @ 5:22 pm | Reply

  2. I think we’re going to bounce up tomorrow. I bought SPY 120 calls in after hours session right at the very bottom of the day. Officially, today was NOT a decisive break of the July lows. You could be looking at a double bottom! Everyone is saying this was not a panic Monday. It was a bear day, no doubt, don’t get me wrong, but you should see less selling tomorrow in my opinion with FOMC calming markets and inflation numbers moderating and oil cheaper than ever! Just my opinion.

    Comment by Franco — September 15, 2008 @ 5:34 pm | Reply

  3. I agree, too risky to trade near a Fed meeting. When everyone is this negative it makes me nervous

    Comment by Jigsaw — September 15, 2008 @ 6:16 pm | Reply

  4. Moon, here’s a guy with the same time projection for a turn as you but he’s still prediciting a up move until the 20th. Could you see a senerio like this playing out as well, with a retrace starting somewhere around a lower opening?
    http://www.amanita.at/e/faq/e-bradley.htm

    Comment by Jigsaw — September 15, 2008 @ 7:16 pm | Reply

  5. actually the points he predicts can be highs or lows, but could you still see a scenario of a retracement until the 20th?

    Comment by Jigsaw — September 15, 2008 @ 7:31 pm | Reply

  6. Jigsaw, regarding your first comment, there isn’t much more the Fed can do to turn this market up. When the president has to speak out to try to calm everybody about the markets, it’s because there’s no much more ammunition left to the Central Bank.
    My analysis point down, and I’m positioned to that.

    Franco, you’re right, we closed right on July’s low, it was not a deep breach of that level. However, today’s low is too far from July’s to be considered a double bottom.

    Comment by moontrader — September 15, 2008 @ 7:57 pm | Reply

  7. Jig, regarding the turning dates, yes, it’s possible we see a move up before going deep down. The dates I come up with are reversal points, not necessarily tops or bottoms. However, the way the market is behaving, I don’t think it’s going to be a top.

    Comment by moontrader — September 15, 2008 @ 7:59 pm | Reply

  8. BTW, now it’s 11pm ET, and futures are down down down. Asia is having a huge stomachache.

    Comment by moontrader — September 15, 2008 @ 8:01 pm | Reply

  9. Hey moontrader, are you still calling for a big down day on Sep 19th or 22nd?

    Comment by Lawrence Chiu — September 16, 2008 @ 6:47 am | Reply

  10. Lawrence, the 19th or 22nd are good candidates for a significant reversal point, either top or bottom. Obviously, the market heading sharply lower, it will be a bottom, but not necessarily a big down day on those days. The big fall can come one day earlier, for instance, and reach a bottom on the opening of those days. Got it?

    Comment by moontrader — September 16, 2008 @ 7:48 am | Reply

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