March 11th – Liquify the Markets, watch it bounce

One white knight darkens, another comes to the rescue.


The market touched the bottom yesterday. I wasn’t around to trade it. Bummer. I would have probably put another GS 170 calendar on. My accts increased by 1.5%, very nice. This morning they are up about .2%.
This morning the Fed injected more capital to the investment banks. Specifically, they will hold agency paper for 28 days, rather than just overnight. I am curious to see how well this works. I think this is a good move by the fed by putting money to the right places. The Banks were simply not lending at rates the lowering of the Fed funds decreases.
I would have liked to see a WHOOSH today to cover some of my shorts and increase my long exposure. I did put a 10% increase in my long SP index fund yesterday.
The pre-open activity has the ES futures up 29, just below the R3 resistance on my Pivots. There is going to be a massive test @ 131.18 to 132.10.
50% retracements – 131.18
previous low @ 131.15
62% retracement – 132.10
I will buy the SDS into this.
My positions that will benefit from this:
GS – 170c calendar
MSFT –
T
UST
POZN
PGN
WSM
FAST
Positions that are somewhat hurt:
MRVL
SMH
DSX
T – I covered 2 units of T 32.5/35p credit spread for .80. I sort of messed that trade up, but still made a profit. Ugg.
CELG – Sold 1 unit for a .05 loss. This stock has been in a range. I chose to sell this bearish play @ 55.57.
SDS – bought 1 unit at 68.07. I nearly sold @ 68.95 in the morning, but I didn’t get filled. I then sold @ 68.44 as soon as Steve Liesman on CNBC announce “Just from the Fed’, I sold it at the market.
MSFT – exited final spread @ 7.11. for a nice little profit.
SMH – Put on another 26p calendar for .26. It went off just before the close.
DUG – bought 2 units of the double-inverse SP Oil and Gas fund for 39.45, and 2 more @ 39.31. On the open, it took a huge hit this morning on the strong rally. I have a tight stop in case of a further market rally. I bought it as the SP had retrace 38.2% of it’s morning down move. I was stopped out between 39.02 and 38.98. I was happy to be out before the afternoon rally.
UPDATE-
I was teaching this afternoon and I was getting alerts on my phone. When I arrived home, I was somehow up .3%. Good thing for delta portfolio hedging. At the end of the day, I sit -105 deltas. I would like to see a down move off the open and remove some of my short deltas. I think we still have a little ways to run from this positive economic news. Fundamentally, it will not be helping the ailing homeowner, but the big liquidity providers should be able to clean up their balance sheets.
I am scratching my head here, wondering the heck to do. 4% one day moves SUCK. Because now what? Do I really want to buy at the open… Heck no. Do I want to short into this breakout? No, not really. This is good fundamental news for the market. So I will turn to the charts.
What looks possible/probable?
SPY Daily
SPY%203.11.gif
Here is my technical guess.
Today’s bounce ran right into the bottom of the sideways trend which ran through the month of Feb. There is selling resistance there. Many people trying to catch a trend channel bounce were screwed. This could lead to selling into strength, which will push the market down. However, I would be surprised to see this downward pressure last. I could certainly see the S&P melt up into the previous trading range. Notice from the chart, that there is a confluence of a 50 day MA, top of the trend channel, and a strong Secondary trend line acting as resistance. Almost any program trading operation is going to sell these hard. I intend to join them.
At this point, I have peeled out of my longs… i.e. T, CNET, and MSFT. And a few of my shorts CELG. I still hold 1 unit of DSX.
My exposure is primarily in the form of Calendar spreads (slightly delta negative). Some benefit from directional up moves… GS, POZN, AIG. Some benefit from Directional down moves, MRVL, SMH, WSM. And some like it just where it is now… UST, FAST. The think all of these have in common is that they are all earning theta decay right where they are now.
Being that I see this as no man’s land, I intend on staying put and earning from time decay. If we see (which I think we will), a move to test Significant resistance, I plan on lining up my shorts again…. only bigger. ATI, ENR. and OIH.

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