Tuesday, March 24, 2009

A Perfect Storm

Today played out almost perfectly. A nice move down in the market at the open to test the 805-810 range, a bounce, and then some great trading opportunities during the day, only to close right at the 805-810 resistance. If you missed the opportunities today, you were not paying attention to resistance after a big move up the day before.

As stated last night, we should return back to the 805-810 range and from there, we should bounce off and probably continue the bear rally up to possibly fill the gap to 840-850. It may not happen in one day but over the next 1-3 days, TA says that should happen.

At that point, the market will clearly be overbought. Overbought does not entitle the market to go down. It means that it doesn't take much news or much change of sentiment for the marke tot correct back to a key support level.

So I see this market playing out as designed unless news changes that.

As I stated yesterday, straddles are the play right now. The market is at a key support level and can move 50 pts in either direction fairly quickly. The odds are it will go up but it could easily go down if there is significant news. So playing a straddle right now on pretty much any index or ETF is a great play. I played the FAS straddle yesterday and today sold the call side with an 80% profit mid day and bought the call side back at the end of the day at the price I bought at yesterday. So I am straddled again at a key resistance. It is grreat protection and a great way to play swings with little risk, and at the same time, insures you won't miss a huge move.

The VIX stays above the 200dma and continues to tell us this rally is not for real. It feels real. It looks real. But the VIX is staying volatility reigns and thus the expectation is for a big swing reversal sometime in the near future.

Watch the S&P tomorrow. A break below 800 is a clear sign the rally is in jeopardy. But a gap up in the morning probably will mean we are headed higher and you should not get in the way of that move until the next resistance level.

BTW, once again I ask, has anyone heard from the banks yet on the public-private toxic asset plan???? Of course not. And needless to say, that is not a sign the Timmy Plan will work.


  1. I wish I had bought straddles after being such a big advocate of them. I can't ever seem to get the right pricing though - more or less even put and call prices. What is your suggestion for better entries?

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  3. DWT, option prices are relative to volatility for the stock and the current market. You can't let the prices get in your way and just try to get close to the bid price at the time. When the timing is right, don't let price get in the way. Well, unless the premiums are really out of wack. The mistake many make is to buy at market price. You are already down anywhere from 2-10% when you do that. Like driving a new car off the lot.