7/29/2007- Week preview

I love the talk of Oct ’87, what will monday bring? Especially after last weekend’s All-time high talk. People are so funny. Emotions in market.

Of all the things I enjoy in this world, I get most joy from bring up my children with my wife and sharing with love and wonder of this great world. I love to ski and golf and share the passion for those sports. And I enjoy building and working with my Prepaid Legal team. And right with those, I enjoy trading within the energy of the market. What a challenge (In a very good way) How has your week been?
Out with my monkey
I love the talk of Oct ’87, what will monday bring? Especially after last weekend’s All-time high talk. People are so funny. Emotions in market. I don’t care how “technical/unemotional” we think we are, nothing like a shake up to show us how emotional we can be. Certainly Me included.
SPY Chart
I am glad the weekend is here. A time to read, listen, and think. I am reviewing the SPY chart. There are some very interesting pieces here. I don’t think our economy is in the toilet. What has changed fundamentally?
*M and A activity. The ability for new takeovers to take place with “cheap” money. The Repricing of Risk. That started the catalyst for the Secondary trendline, and Tertiary Trendline was fed from that too.
* Housing prices and sales. They have been turning down for some time, see Repricing of Risk. I don’t necessarily think that is over, but that is an old story. (p.s. I am feeling pretty good about selling off two of my properties 18 months ago, for “my” price).
What is good? The Global Economy. That is a main catalyst for the Primary trendline. Has it changed? Not really. Especially China. US good are cheaper than they were a year ago, due to FX. In theory, that should make US goods cheaper to the world (Labor costs can’t compete with many countries though).

Picture this:
The Big Hedge fund guys are smart. They are not going to go home and take the rest of the year off, forgoing further M&A. And if there are mergers announced on monday morning lookout. The market will soar, reacting to the notion, “All is well, the market overreacted to the idea that credit is tighter for M&A deals”.

I certainly am not a bull right now, however. This makes sense to me that the Bears may need to reload and cover their shorts. The 200MA lining up with the “Secondary Trendline” seems like a good place to start this bounce. If there is either a AM bounce higher in the ES- Futures or am selloff on light volume, it will signal a relief rally to me. There are two significant support points I am looking for. 144.98 (200MA and Secondary Trend), or 143.90 (61.8% retracement on tertiary trendline). If It rips through this, I will be moving my outlook on the retracement to a Secondary trendline. 142.96 (50% retracement of the Secondary Trendline). That would be a major league correction. 134.98 (61.8% retracement of the Secondary) would signify a MAJOR Correction. I don’t foresee this happening, especially during an election year, but I thought is was worth being aware. It is possible to go there, but I think it will take several pushes to go there. There will be numberous playable reversals during that time.
Again my though is this: We bounce Monday, the rally could take us as high as 153.61 by Aug 20 (Expiration Friday), then we hit resistance as price action takes us off the backside of the tertiary trendline. At that point (touch of the tertiary trendline could coincide with a head/shoulders pattern). Then, I am AGGRESSIVE BUYER OF PUTS on the weakest index, currently IWM. Right now Aug or Sept Bear Call, or Aug Bullish Butterflies seem to make sense to take advantage of the high VIX. If the indexes do rise to the trenline, then the VIX should be relatively low, and Sept, Oct, or Nov puts or put spreads should work well.
US 10yr – “Flight to Quality”
I sure hope some of my friends (KB & NM) in the Treasury world have been on the right side of this one. The 10yr yield went as low as 4.75%. The difference below the trendline 4.79% and 4.75% can be painful if you are on the wrong side of that move. I bet the fireworks on friday were something to behold. The shorts were sqeezed hard on friday.
I will be watching this this week. I am using TNX which mirrors the interest rate. Inverse of the actual treasury price. Is it a double-top, just relief from the dramatic push on June 16th. Hmmm. Not sure yet, see Repricing of Risk. Do we get merger mania revised?
Euro/US dollar Cross
Middle of Range/UpTrend
Dollar has been strengthening vs. the Euro during the recent selloff. The argument for promotion of US goods will be aided by the rise in the chart (continued drop in the value of the $USD). That is the LT-trend. Fibonacci Retracements for the Euro/$ cross are:
38.2%- 136.39
50% – 135.69
61.8% – 134.94 (also, LT Trendline)
WWY – A little after monday’s market open I exited for .57. That was a nice 100+% gainer. I especially like this exit, because I think the market will rally early this week. And with this being significantly above the strike price (55) I didn’t want it to drift above my B/Es. I probably shouldn’t think about it this way, but WWY made up for all of my losses on the longs last week.
SPF – Sold a half unit of Jan/Dec Calendar for .20. This may turn out to be a nice hedge trade for the Dynamic hedge fiasco. The Dynamic Hedge trade is actually in very good shape. There is NO downward loss potential left for this hedge trade! The 17.5p is providing the max safety net here. I would like to see this move up to the 16.5 level.
AFL – 2 units 50p Feb/Jan for .05. Looking to create a “calendar tent”
IWM – I too chicken this morning put on a bull put spread. I place a Aug 78/75p for ..93. My choice of entry was above the downward trendline break. I am looking for a continued move upward and volatility to drop. We’ll see.
I am enjoying my sunday morning

Part 2 of 3 in a series with Dr. David Hawkins. He is one of my favorite teachers.

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