Sunday, October 5, 2008

This Week's Trade

The chart pictured is a weekly chart of the SPX and as you can see from the peak just about 1 year ago we are down a considerable amount. 28% to be exact. The long term trend is obviously still down and we should not be so quick to call bottoms like so many pundits have lately. Sure there are always these short term bottoms that produce viscious snapback rallies, and yes you can make money that way but you must know when to take profits. Even short term traders like myself need to always start their analysis from the longer term timeframes so you are aware of the longer term trend. We are getting to an extremely oversold point on the markets and odds say we get some sort of rally here soon but we will have to see a massive washout capitulation moment first.
Last week the SPX lost about 9% and this is truly one of the widest ranges for a week I have seen. Starting the week over 1200 and ending it at 1099 is mind-boggling but this is the market we are in and thus you must trade what the market gives you and not what you want.
With the futures down about another 15 SPX points as I type Sunday evening I would expect us to gap down in the morning and perhaps sell off further but not without at least an attempt of a gap fill after the open. I have had a bearish bias on my options positions the past few weeks but I will be looking to stay on the sidelines looking to find some longs and have my cash ready when this market is ready for a relief rally of some sort the next week or two. Again, not saying this will happen but I am going to start to build a more bullish bias this week. With that said, for Monday I will more than likely have a bias to the short side when trading the ES futures. Lots of resistance overhead (1110, 1115, 1125, 1130, 1137-1140, 1154).
I have a feeling this will be another volatile news-driven week. With the bailout plan passed and out of the way, you will probably see rumors of the Fed coming out with a rate cut to ease the pain OR the Fed coordinating a global rate cut effort with other central banks.
Whatever happens out there, dont get caught on the wrong side of the trade!

No comments: