Headed Out

After the market closes I'm headed out on an expedition through some of the back country here in Colorado. Have a great weekend everyone, see you Monday.

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Market Setups

The market is not setting up that well for the bulls. I see two different things that might make the bull run stop for a while.

The chart below is of the $SPX and there are two sell signals that could play out. The first is a candle pattern that is forming today, because the market closed up yesterday this pattern has a better chance of playing out. Todays price action opened in the direction of the trend, but this morning the market made an abrupt turnaround. This formation is called a bearish engulfing pattern, which indicates the bears have taken control of the session. I can almost guarantee that this formation is being noticed by many traders and most likely they are acting on the pattern. The second is based on yesterdays low, when we made that low buying started to pick up through out the day. Stops were probably placed below the market, highlighted in white is where I would assume stops are. If we break into that area we could see liquidation of equity that causes traders to either take a loss or protect profit. Which could push the market lower until investors feel comfortable getting long. Again stay on your toes until things become more clear on market direction. My key levels on the $SPX 1080 and on the $RUT 600.

Side Ways News Selling

Picking market direction is like the sign above, good luck! Since Oct 14th we have been in a very tight range with a high probability of breaking out in either direction. Earnings continue to come out better then expected, the beige book came off slightly bullish, existing home sales bullish and the most important thing is that the trend is up. But all of that stuff gives me doubt about going higher like we have been. Seems like funds, money managers and institutions are selling the news. Selling good news in market tape like this makes me feel like we have went to far to fast and current market price does not reflect true sentiment.

As long as the trend is still up I will trade to the up side. But I will be more cautious about my trades and positions, and I will keep my eye on any indication of a turning point in the market.

Filling the Gap

Yesterday I read an article about a small gap on the S&P. The article stated that before we go higher we must fill the gap. Now today the gap is being filled and we will see if any buying starts to hit the market once this gap is filled.

Monthly

Not much to say, I'm going to let the chart speak for if self.

S&P 1100

Dow 10k has busted above and we are trading higher, I expect the same with the S&P 1100. 1100 holds huge significants because of the so called "Lehman Gap" then crash of the global markets. A close above this level would be a big confidence booster for the bulls and a slap in the face for the bears. One concern that I have is that there is a lot of over head supply in the market above this level, some people are coming back to even and are giving up. That might make the profit taking start, but considering how well earnings have been, any weakness is being bought. The next area of importance is not until S&P 1200.

I did get filled on the butterfly trade I posted yesterday @ 14.00.

Bull Flag or Out of Steam Sally?

Is GLD topping out with anticipation of a pullback or is this just a continuation pattern? The characteristic of a flag are showing with volume, the steep quick price trend and the short time the flag has had to form. The problem with this set up is that its about 64% reliable that it will meet its price target. So I don't like to have too much exposure, but I do have a trade idea. Trading a spread is the easiest way to play the flag, because even if it doesn't move I still collect theta, and theta is a good thing! Plus if the dollar continues its path of weakness gold can only go higher. There is no type of adjustment on this spread, more spec then anything else.

Dollar Bottom?

Could the dollar be making a bottom? The indication of this happening is strengthening. But a cheap dollar has helped out the equity market by insuring better earnings for multinational companies. It has also helped out our commodity market by pushing up the cost of oil and gold. If there is any dollar bulls out there its more of a contrarians opinion then actual health of the greenback.

Bread and Butter

What you like some bread with that butter? Today I'm setting a $RUT butterfly for Nov, I'll keep you posted on adjustments, fill price and thoughts on this trade.

Trade Idea

Even if I think volatility is coming out doesn't mean I can't have a long vega trade on. Volatility diversification is what I like to call it. I have big exposure with short vega trades, so I decided to set some long vega trades.

Major support is at about $18.50, and it seems like we are headed to that level. When we get to that level I will reset a calendar or some thing else that is long vega. As of right now I looking for volatility to come out.

Volatility

Volatility is headed lower today again on expectations that earnings are going to be better then expected. With volatility continuing its course lower I made the decision to take off my calendar spread on the $RUT up +9.7%. Not bad for about a week and a half. So if volatility is going to continue lower I would like to get short some vega. Today I set some ITM debit spreads and OTM credit spreads, which are short vega. But I really want to get some exposure to the down trending volatility, and this brings me to a trade idea.

I also purchased 195 calls on Apple (AAPL) before the market closed today, and it seems like it will pay off tomorrow.

Doesn't Mean Anything To Me

Dow 10k, big deal right? Maybe it depends on how you look at it. Humans love round numbers, media and the press feed off of it, but for traders it doesn't mean anything. And if it was to mean something what would it be, more buying or time to take profits? Its the old chicken and egg scenario, which one comes first. Below on the chart you will see a red line indicating 10k, now the argument is that 10k could be a pivot point for the market. It could be, the thing is how are the traders and investors going to react to this level? My bet is on profit taking, then a slight pullback with continued upside till year end.

Trade Update

The Nov/Dec 610 put calendar I bought on the $RUT is still in very good shape. I was expecting more of a volatility pop, but instead its been kind of quit and sideways. New Nov. trades have already started to get filled. I have been setting credit spreads on the $SPX below $950 and on the $RUT below $520. Next week I will start setting debit spreads and cash secured puts.