Sunday, October 12, 2008

This Week's Trade

So the SPX futures are up a cool 43.5 pts as I type Sunday evening and barring any crazy news overnight (which is a normal occurrence these days) then we should have a monster gap up at the open. The question will be whether it is sticks and you should buy into it. First off, I would say to NEVER buy a gap up, or sell a gap down for that matter. Usually you see these things fill the gap during the first few hours of trade. If the market wants to go higher it will tell you that by showing uninterrupted strength all day.

Friday evening Hank Paulsen said that the US gov't will try to take major stakes in US banks and this was followed by the ECB saying that they will do whatever it takes. Hmm, heard that one before. Doesn't sound too bullish for the Euro currency imo.

Last week we saw about the worst percentage losses we have ever seen. Down about 18% on the SPX and if not for that huge rally in the last hour then we would be talking about a 23% loss for the week. As much of a downtrend we are in, I think it is so overextended that I will be looking to have a more bullish bias on my trades this week. You know we have to snapback very soon here and at least have a sharp retracement of the previous few weeks of losses. Getting back above 980 would be bullish and if we surpassed the 1020 level this week and hold it I think that could confirm a follow thru to the upside. Both of these areas will provide us with tough resistance and thus should probably be sold into rather than bought into hoping for a breakout.

The only sure bet is that volatility will be abound. Check this out. Even if the VIX, which closed Friday around 70, would get cut in half this week then it would still sit at a cool 35--a level we perceived as unbelievably high just a month or two ago. As traders we love this volatility because movement is the only way to make money in the markets. But with this comes a price. The pricing of options has gone thru the roof recently. As the VIX rises, the implied volaility of options goes higher, making the overall premium you pay for options much higher. So you just need to have a concept of the premiums you paying up for when you do go long some options.

I really dont have too many trading ideas in individual names for the coming week because of the extreme volatility out there. Just know that a rising tide will lifts all boats. This means that if we have the rally that I am anticipating this week then pretty much any decent stock out there will rise so you are probably better off just buying the QQQQ or the SPY to get exposure to a broad-based rally this week. Trade safe.


GS751 said...

Surpassed 11 Billion shares traded on the NYSE today.... Bottoms occur in low volume conditions lol. I'm just gonna wait with my $$$ for a little while and then do what I do best... Back the truck up with puts on all those names with financial shenanigans..

Jason said...

Last Friday had all the makings of a bottom. But all true bottoms are usually retested at least once so I think we do stay choppy and volatile into years end..