Wednesday, November 5, 2008

Hit With Change

I was expecting the SPX to fail near the 1000 level yesterday and start to pullback. It did. The action on Monday and Tuesday was on pathetic volume and not inspiring to me despite what the bobbleheads on tv may have said. I bought some SDS calls Tues before the close, which by definition is a short position on the SnP's, just on a ultra inverse etf. Not quite sold on these ultras in regards to trading options on them. But thats a topic for another day. The end of the day action on Tuesday told me that the market was running out of steam from when it started to rally a week ago. The volume was lacking and so when the big boys are not participating in a gap up rally, neither should you. I will be holding this short position into Thursday even with it being up nicely already as I am expecting a multi day selloff.

This morning the market made a lower high on the 30 min chart and that was confirmation imo that we were heading lower. Today's action was exaccerbated by the bearish ADP employment figures released and it appears that today the market priced in an equally dismal payroll number on Friday. As soon as the downtrend was confirmed on my longer term minute charts, every bounce back to key moving averages was an excellent opportunity to sell with nicely defined risk/rewards.

Contrary to popular belief (Yes I'm talking to you Dennis Kneale), the market did not go down today BECAUSE we have a new Democrat in office come January. The market already knew this would occur and thus priced it in, like markets tend to do. The market was down today because of the fear of massive job losses being reported on Friday and unemployment is by far the most important indicator to gauge the depths of a recession. When people dont have jobs, they dont pay there bills, they dont make discretionary purchases, they dont invest, they do not put money back into the economy, period.

So anyway, just remember the market is up like 15% in a week or so so we are due for a pullback as most short term indicators are overbought. We are in a trading range and simply hit our heads on the ceiling yesterday, lets just hope the floor holds our weight! I would think 900-920 is a reasonable target to expect on the SPX by week end so dont fall in love with any of these bounces we get the next few days.

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