Preparing for the Week – May 4-8, 2009

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I am getting back into my summer trading swing. And I like it.


Well, has this been an interesting market. Because everyone is expecting a buyable pullback, the markets are being bought quickly on slight pullbacks. There are a many indications for a technical pullback as well as a fundamental pullback, but the market seems to overlook them all.
I have also started playing more guitar of late. It is a good stress reliever. I have been breaking out and playing some Hendrix in the Trading room to entertain myself. Also, I have learned a few new songs by David Wilcox this week.
Here is a little different flavor. Some tunes to read by… Angels & Airwaves (a Dashboard Confessional meets U2 meets Blink 182 feel)

On with the post:
The expectations of a pullback on my part has lead to some slight losses on Wednesday through Friday. As well, as many missed long opportunities. However, I was up 4% for the month of April, to back up a nice March (+9%). Clawing back from a very poor performance in February (-15%).
I have been enjoying pair trading indexes.
There were three major happenings in the markets in the past week.
1) US Treasury breakdown (after a failed, breakout)
2) Nasdaq reaching the 200 day MA, creating a topping tail.
3) Market breakout above roll over pattern, (failing at the top Bollinger Bands).
Upcoming: Look for MAJOR weakness in the Small Cap (Russell)
Here is my starting point: S&P 500 daily
I was selling into the 876 level, which was breached on Thursday. I was stopped out of some positions. However, I re-established neutral to short positions in the MNX (Mini-Nasdaq) on Friday morning’s gap up.
SPX 5.3.09.gif
My stance: Short-term bearish,Med-term bullish, Long-term bearish.
We are topping out into the upper end of Bollinger Bands, and on lighter and lighter volume. The stop of Thursday’s high is well-defined as a stop. Although I have been bearish (and wrong), on short-term direction, I remain in a neutral to bearish stance. I am looking for a downside target of 804-836 on the SPX.
Break of the 61.8% retracement of the 10yr Note:
I was playing support off 120’16” (Bollinger Band, and orderflow) on friday and laying off the risk in the equity mkts (ES and MidCap400) for nice profits on friday.
ZN 5.3.09.gif
On Tuesday, I was long the TBT as we broke the 122 support in the 10yr note (/ZN). I was right, and then we reversed. On Wednesday, US treasuries made a strong move up (stopped me out for a small profit). I thought is was a move to a risk aversion trade. I was short the Russell and long SP in anticipation of a selloff in the higher beta names. I was wrong. Early perhaps, but wrong for now. The treasuries then broke down again, and TBT was a big winner for those who stayed with it. As the Equity market continues to rally, I see us moving back down to the lows 120 area for the 10yr Note. However, I think we have set up of a counter trend trade here… I can see a bounce off the Bollinger Bands, and a defined stop below the bottoming tail hammers on the /ZN. I would like to be short of the /ZN @ 122.
My Stance: Short-term -bullish to 122, Medium term bearish to 120, Long-term – Bearish.
New major position – MNX (Mini-Nasdaq)… playing a reversal from the 200day MA.
The Naz (NDX, MNX, QQQQ) have been on fire compared to everything. However, we found a resistance point worthy off putting on a position. A topping tail was created above the 200 day MA, and the top of the Bollinger Bands. Downside target 1273-1330. I could see a consolidation between the 50 and 200 day MAs.
NDX 5.3.09.gif
My position: 2% acct position in the Jun/July 135p calendar. (I have a plan for another 2% (bullish position on pullbacks).
I gave up a 1% vol skew between Jun vs July. We are at the bottom of the Volatility range for the past 6 mos.
This position benefits for a rise in Vol, and it is Theta positive. The Breakevens are ample, IMO. 126.26 and 145. (MNX is 1:10 the size of the NDX).
I will take off half, IF we move above Thursday’s high 1418.9. However, IF we retrace off these highs, I can see a retracement to 1273 as a potential… That would also market the previous top of consolidation. More likely, a move to 1330 would be in the cards.
The Reward to Risk on my timeframe is 8:1
And finally, the SCREAMING technical short – Russell 2000 (RUT, /EMD, IWM)
I will be looking to short on a break of the trendline.
Why? We hit the 38% retracement, major topping tail reversal signal, top of Bollinger Band, Retracement to previous Wave 4 high.
RUT 5.3.09.gif
My Stance: Short-term, Med-Term, Long-term – BEARISH! I am looking for a short/Med term pullback to 422-441 in the RUT.
Sell it, or at least sell against S&P or Naz. And that is all I’ve got to say about that.
Make it a great week!

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