Saturday, June 11, 2011

Our plan for next week

We took a mid-sized position near the close prices on QQQ IWM SPY but with the understanding (and lots of room in buying power) that market could gap down/sell-off a few percent into 125 SPY on Monday.     So why did we buy?  Because there’s a chance market doesn’t gap down and we wanted to be involved, and we liked the XLF hammer.  So why didn’t we go in with bigger size?  Because the evidence is quite mixed and major trend-lines and support levels often serve as magnets — basically, it’s too risky to bet anything big right now.  Even if we gap up we would have zero regret for not taking on larger size.   Note also we didn’t put on any leveraged product (no TNA, SSO, no futures) as we want to stay on the conservative side.
We wrote on Monday night “we think ultimately this market will at least go test the trend-line which currently is lining up with the 200SMA around 125″ and it’s coming even sooner than expected.     Note how trend-line is slightly below the 200SMA.  We’d love a) bounce before 200SMA to leave out all the dip buyers who didn’t get in today and were waiting for the 200SMA or b) a move through the 200SMA to freak out everyone and then bounce on overshoot to trend-line just under it.

And what if trend-line can’t stop this falling elevator?  Well, next support is near 122 — but unlikely we will get there without experiencing some bounce, even if it is a dead-cat intraday or 2 day bounce.

The QQQ very similar — trend-line support, and then major support right above 50.7
QQQ close to 200SMA — however, note the awful action in AAPL — good possibility that the 200SMA will not hold.
One of the brighter notes — XLF off the lows on Friday.   Good start.

Copper technically broke down but then rallied back to close near 405 support again.

GDXJ another bright spot as it held firm during the market downturn.

We’ve been asked for long-term predictions from some of you — we don’t have any.   We don’t believe in long term technical analysis.   The charts can look one way but then the market has two days contra-trend and the whole picture changes.  Right now it looks like we will test the trend-line, bounce, and then go through and test the major horizontal support (122 SPY, 50.7 QQQ) but again a  rally  could change that picture drastically.    The price-action is bearish but it’s too oversold for us to put on break-down shorts — however we will be active in resistance shorts on any bounce.    We think this coming week will bring a lot of fire-works — absolute key between those that make a fortune and lose a fortune is buying power.   If you start slow and add only at major levels (no margin, no leveraged products) you can often catch very nice reversals.  If you start too soon, add too soon, most of the time you will blow out before the reversal comes.
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