Trade Modifications

Click on Chart to Enlarge

First, off I wanted to make a couple modifications to prior trade recommendations. First, keep the stop loss and limit order to sell the current SSO trade like stated previously. But cancel any standing orders to buy BGZ at 62.00. Nothing drastic has changed, but I think that later this week, I will have a better idea of where to get in. I suspect that we can get in lower than 62.00, so just wait until things clear up a bit to make any new trade entry.

The chart above is SPY which is the S&P 500 ETF. Recently I had made a post addressing the potential reverse head and shoulders pattern forming in the market. My conclusion was that the pattern had several weaknesses and should be viewed very skeptically by chart pattern traders. In another recent post I had noted a tendency for markets to make short term gains shortly after topping and breaking through support. At this stage I believe an advance toward the "neckline" of this pattern is probable. This purpose of this rally, if I may ascribe intentionality to the markets, will be to trick people into believing the market will "breakout" of this pattern. Those traders who have the Audacity to Hope this breakout is real are likely to be disappointed.
For reasons I won't detail here, I think this Friday is a likely day for the high of this reaction rally. Should the short-term model become overbought this week, I will recommend a new trade entry that should last several weeks.

As a side note, or plan B, if you will, any price move below 816 (last week's low in the S&P 500) will likely spark severe selling and would be justification to enter short positions or inverse ETF's at that point. If there is no substantial advance before that level is breached, I will still recommend an inverse ETF at that point so that we do not miss what history suggests will be one of the most dramatic price moves for years or decades to come.


As a secondary side note, I plan to purchase SPY Q1 (March 31st) 70 strike put options within the next few days or so, in anticipation of a move to 600 or below prior to expiration of those options. An added benefit to put option purchases at this time, will be what is likely to be another huge increase in implied volatility on the way down, which will inflate the value of the options in addition to the the anticipated price move "into the money" (below 70.00).

Pete