Luna $ Ticks

December 31, 2008

Inside Time Window

Filed under: Trading SPX SPY — moontrader @ 8:09 am

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:

spy-123008

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.

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12 Comments »

  1. Welcome back moon. Love your analysis.

    Comment by Trader Tom — December 31, 2008 @ 8:58 am | Reply

  2. Thanks, moon.
    Happy New Year and very profitable trading in 2009 (and in what is left of 2008!).

    As you probably already know, the 2x and 3x Inverse ETFs have come under fire lately as people learn more about how they work. So, be careful about TZA, SKF, and QLD, and the likes.

    Look at this thread:
    http://xtrends.blogspot.com/2008/12/into-oblivion-2.html#comment-4794023

    …and this article (mentioned in the thread):
    http://www.thestreet.com/story/10454678/1/why-short-sector-etfs-arent-so-smart.html

    PS: I am still holding those withered puts, though.

    Comment by DalalStreetKing — December 31, 2008 @ 9:57 am | Reply

  3. You mean you are buying QID and not QLD? Also, the top of 12/17 is 91.69, but you refer to a 92.43 in your last para. What is 92.43?

    Comment by bullnbear87 — December 31, 2008 @ 9:57 am | Reply

  4. bullnbear, I’m using prophetcharts and it shows the top on the 17th as 92.43 (SPY). Anyone else with different data?

    Comment by moontrader — December 31, 2008 @ 10:54 am | Reply

  5. Dalal, thanks for the links!

    Comment by moontrader — December 31, 2008 @ 10:54 am | Reply

  6. Dear MoonTrader, I greatly appreciate this site. May you prosper in 2009 and a very Happy New Year to you and Ms MoonTrader!

    Comment by Urszula — December 31, 2008 @ 11:33 am | Reply

  7. To bullnbear87,

    The top of Dec 17 is 92.43?. Please check the chart.

    Comment by Steven — December 31, 2008 @ 11:37 am | Reply

  8. The 2x inverses should be fine for Moon – either we drop by the 5th or we don’t. If we do, there should’nt be much decay. If we don’t it will be a loss anyway. Wouldn’t be wise to hold however if we still haven’t dropped by the 5th.

    Comment by Tradingaces — December 31, 2008 @ 12:41 pm | Reply

  9. Happy New Year to you and Mrs Moon, from the UK.

    Don’t worry about not getting used to your wedding ring just yet, it only took me about 2 years :-)

    Comment by Darren — December 31, 2008 @ 12:43 pm | Reply

  10. Tradingaces, yes, at this point I’m holding onto my etf’s. There hasn’t been a great deal of loss and the next trading day is the 2nd, which is at the center or my time window. There’s no reason yet to close my position. Anyway, the fact that you recognize an edge doesn’t necessarily means that the trade will be successful.

    Comment by moontrader — December 31, 2008 @ 2:56 pm | Reply

  11. Dalal, great links. I’ll have to reassess whether to use ultrashorts or otm/itm/atm options and which exercise. Anyway, the puts I was holding onto didn’t perform very well: low gama, VIX dropped considerably and they lost time value. However, I was expecting a sharper drop – which didn’t happen – and they would have been great. The drop might still happen, but I will wait for a clear sign before getting puts again.

    Comment by moontrader — December 31, 2008 @ 3:01 pm | Reply

  12. The spiral calendar can also be interpreted to indicate a high – possibly the entire 4th wave rally high – either at Friday’s close, or sometime Monday. I’ve charted the short and medium term spirals at http://spiraldates.com/?p=22

    Dave

    Comment by Dave — January 4, 2009 @ 12:45 am | Reply


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