Monday, October 27, 2008

Bear Necessities

Well so far this week is turning out to be a trick rather than a treat for the bulls as the bears came swooping in for a late day kill. The day started off ugly as the ES futures hit an overnight low of 825 before bouncing back before the market opened and through the morning we saw a rally that sent us clear up to 890! Right after around 2pm et the market topped out at resistance and slowly sold off. The selling really came in hard and fast in the last 15 mins of the session as more and more hedge funds probably bailed. Closing down around 848 on the cash SPX is not the best way to start a week.

The best trade in this market continues to be selling any rally that shows signs of rolling over. Until we see some improvement in the charts then I would not be trading the long side for more than a quick scalp. It looks like we have more downside on the way. Today's last hour selloff will have me continue to have a short side trading bias into mid week more than likely.

The VIX had a range of around 66-80 today and closed at a new closing high of 80.06. Kind of scared to say but I wouldn't be surprised to see the VIX spike higher and challenge the 100 level if this market breaks down under 840 like I am expecting imminently. It seems like the VIX is still trading at a discount to the SPX 20 day historical volatility and that usually means it should not be considered expensive. I plan to analyze this further in a later post.

Overall, I am bearish but think we are going to see some choppy whipsaw action this week. Don't forget we have a Presidential election in one week so this will be on the minds of those with authority and I do mean the Fed. Will the gov't try to save the market again (and fail, again) during the last week before the election to alter public sentiment? Who knows. Just be ready for anything and only take the highest of probability setups this week. Trade safe!

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