Friday, November 14, 2008

A Crazy Week

We saw new lows for this year on Thursday as we tested the previous 83 support, and as we started to breakthrough that, a rush of selling (stops likely) started and created an avalanche on huge volume. But, about 10-15 minutes later, that huge volume started to turn into huge buying, which pretty much snowballed (upwards) with shorts trying to cover (myself included). Here's a two day chart of the SPY showing Thursday and Friday:

I drew up the retracement lines from the intra-day bottom of Thursday to the intra-high, which was the close pretty much. The 5 DMA and 2DMA are also shown in blue, purple, respectively. We're currently under that 38.2% retracement level, but it struggled at that line on Friday, rallying from that, but selling off into the close. The 2 day moving average is right about with the 38.2% retracement, so we may get some support there on Monday. But, the worst case may be to go down to the 61.8% retracement level at around 85.77, which showed good support prior to breaking below it Thursday mid-day.

I'm still looking for a general up-trend through this week into Options Expirations, but I wouldn't be surprised to have another sweep low to scare out some more longs before bringing things back in equilibrium for max pain- which is ridiculously high on the SPY at 97. But, the theory is that prices will gravitate towards that price for OpEx, not necessarily end there. So, with the profit-taking on Friday, the likelihood of a continuation seems higher than heading back down, as of this point. The downside in my opinion is to 85, while the upside could reasonably be into the low to mid 90s. That said, this past Thursday may have very well been the last rally attempt before the big fall....

The above chart has the daily over the past two months, with the retracement levels marked from the high on 9/21. Currently it looks like we might just fall back to the previous lows and perhaps this time, just completely fall through. So, I'm really lost right now as the previous post on Elliot Waves was not valid. I failed to realize that one of the waves created a higher low, where a valid wave should not have done so.

In any case, I've realized over the past couple weeks that I've made pretty much all the right moves, but because of my previous long positions from earlier this year that I've just held onto, even though I've made large percentage gains on trading the SPY, the others have continue to hold back my total account value.

I really need conviction this week to simply let go of long positions that are just strapping up cash that could be used in better ways. I've come a long ways in being able to sell losing positions, but I feel I have one more step to go before I fully becoming emotionally detached from my positions- and that's something all investors and traders should have the ability to do.

My positions: I exited all SPY put positions last Thursday, even the ones that I wanted to hold for the huge drop that will give us new lows this year. Then, Friday I entered SPY Nov. 85 calls positions on Friday, as well as AAPL Nov 90 calls in anticipation of a mini-rally this week. But, I realize that my position is way to large, considering we are in a bear market. I hope to exit half on any decent rally, or even for a small loss early next week. At the same time, start to re-build a large put position on the SPY. If we're looking at the next support on the SPY at 76-77, a strike price in the low to mid 80s on the SPY would prob give a nice risk/reward ratio as the delta on those would increase from around .25 into the .70+ range as the SPY heads towards 77. I may also consider doing something with the Russell 2000 as a potential index to buy puts on, as it has generally been the larger % performer on up days, and larger % down on down days.

A crazy week it has been, but we may be in for an even crazier week over the next two weeks.

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