Sitting on my hands prior to the holiday

I’ve nearly pulled the trigger today on adding some shorts. Then I decided against it because there’s no action in the market and no good confirmation. My 50% long, 25% short, and 25% cash distribution seems alright for now. But Figure 1 below leads me to want to add more to the short side.

As shown in Figure 1, the market is still clearly in a downtrend. Moreover, we are at the top end of the channel. So shorting at this point has a good risk/reward ratio.

S&P 500 ETF

In particular, Goldman Sachs in Figure 2 seems like a decent play.

Goldman Sachs

But as I was saying, I’d rather wait for GS to break the triangle first before making a move. With the current market, it’s better to be late than early.

BOUGHT +34 DUG @30.00

I entered a short to hedge my longs as planned. I have been trying SKF a few times previously but keep getting stopped out. So I’m giving a shot at DUG this time around. Today S&P broke down to the bottom of my up channel again. We could very well bounce back, but I needed to hedge my position as planned.

Ultrashort Oil & Gas

Upside: Positive divergence on the daily. Strong support at $30. Unfilled gap above $34.

Resistance: $31

Downside: Still in downtrend. EMA shows downtrend gaining momentum. Oil broke recent downtrend too.

Support: $30

Bottom line: This is a short hedge to safeguard my longs if the market do break down from here. As I noted before, this is a distinct possibility I need to account for. I intend to hold this for several weeks.

Target: At least $34.

Stop: Observe $25-$26 level.

Auto bailout shakeout December 13, 2008

To bail. Not to bail. To bail. Not to bail. Friday’s market gapped down big time on news the bailout failed to pass the senate on Thursday night. Then just hours later, rumours were surfacing about the White House stepping in with the TARP money. As of Saturday, FP headline reads White House holds off on auto bailout.

Since I’m no economist, I am not going to discuss about the auto bailout here. What matters to me is the market. As I was saying, the market gapped down Friday morning and even touched 851 in the first few minutes. However, it hacked its way back up to close positive at 879.73.

We managed to hold this critical 850 support level as I noted in Thursday’s post-market analysis. However, I wouldn’t want to add to the longs at this point because both of my uptrend channels have been broken. I feel that at this point, it is safer to watch and be more late into a trend than usual.

Specifically, I would like to see the S&P 500′s behaviour around 860 or 900 (Figure 2), which ever comes first, before adding to my existing positions.

S&P 500 ETF

e-mini S&P 500

On a more personal note, my stops for DRYS and SKF were triggered on Friday.

On December 12, 2008 8:30:32 AM, my -$1.0 trailing stop for DRYS were triggered (stop at $7.90) and my last 100 shares were sold for a basement price of $7.34. I have definitely been a victim by the market makers gunning for stops. As DRYS pushed higher throughout the day and closed at $9.37 on Friday.

As I’m actually away on a trip for these few weeks, I don’t think I’ll re-enter DRYS until it clears the resistance at $12. I simply cannot watch it as close as I would like.

In any case, I already unloaded half my position previously at $11.11. So although I feel I’ve been ripped off with my stop, I believe this is overall still a good trade because I unloaded on strength and have set a reasonable (using my channel) stop just in case it turns back down on me while I’m away.

DryShips Inc.

My Ultrashort Financials (SKF) stop was triggered on Friday too. This one I am a little dumbfounded. I have set my trailing stop at -$17 on the mark for SKF. The stop price of $124 was triggered and my 7 shares were sold for $124.09. Having bought at $128.83 the previous day, this is a small loss.

Notice that giant opening spike in the chart below? This is yet another example of the market makers gunning for the stops. I believe I should have set a hard stop instead for this one since I’m using it as a hedge.

Ultrashort Financials (SKF)

This is still a trader’s market. Since I’m away oversea, I can’t manage my account as effective as I would have liked. Setting the trailing stops was a safety measure. Although they worked against me this time, I still think it was a good decision given my circumstances.

Anyway, I am at 50% longs now with no hedge (not good). My other 50% is in cash. My primary short term goal now is to seek out a good short entry to hedge my longs. I don’t think I have the guts to add anymore longs until I see more strength in this rally.

BOUGHT +7 SKF @128.83

I intended to take on a short to hedge my position after I unloaded my DRYS shares yesterday. The main reason is that I’ll be away for a couple of weeks and will have limited access to the market. So it’s only prudent to hedge my long positions in this volatile market.

The 115 level was an obvious resistance yesterday for the Ultrashort Financials (SKF). I thought of entering at about the 110 back then, but resisted the temptation to catch a bottom and waited until it can break through 115. We didn’t stay below 115 for long today. And as you can see, I’m in at 129.

Ultrashort Financials

Ultrashort Financials

Upside: Market is still in a downtrend. SKF broke above 115 resistance level. High volume test of $130 resistance ($129 is 200 day MA) at end-of-day today. CO and Stochastic are both bullish on the daily.

Resistance: $130.

Downside: Still within downtrend channel. Heavy resistance at 130 level.

Support: $115.

Bottom line: This doesn’t look like a good trade. That’s why I’m only entering a small position as a hedge for my longs. Frankly, I hope this doesn’t work out. Since I’ll be away, I have set a loose trailing stop.

Post-market analysis December 11, 2008

S&P 500 retraced at exactly the 50% level today, touching a low of 868 and closed at 873. We just broke below my intermediate term channel today. We might test 850 at this point. Breaking below 850 will be an obvious sign of an end to this current rally. I have tightened my stop on DRYS today since I don’t intend to hold it through thick and thin.

e-mini S&P 500

On the other hand, I can’t help but noticed that we’re still within the downtrend started on October 3. This is yet another reason why the current rally hasn’t really caught on yet. There are still many people wisely waiting on the sideline. Even I have trimmed my longs and taking on a hedge in the ultrashort financials.

S&P 500 ETF