Potential Change in Strategy Later This Week

Click on Chart to Enlarge

The chart above is the S&P 500 ($SPX). Nothing has significantly changed from my perspective, but if the S&P 500 does not fall below 800 (another 4% approx.) by the end of this week, I will plan on shifting my blog trading strategy back to short-term only until things make a clean break one way or the other. The reason for this is that I would be a bit befuddled from a technical standpoint if prices do not fall almost immediately. So, an exit recommendation for BGZ tomorrow evening or mid-day Friday is possible.

Yesterday was a big decline, but prices stayed above support, and there was no follow through down today. The light blue box on the chart shows what I have previously noted as the key price levels to watch (800 and 880ish). Also, the red uptrendline from the Nov. to Jan. and Feb. lows is an important line. Prices are riding that line for the last few weeks.

Now as a side note and piece of market education.......

Sentimentrader.com (the main site I use for contrarian type data) has an indicator that shows what volume of calls and puts are being used to open new option positions by "smart" option traders (S&P 100/OEX options). In stocks and options there are those who consistently time the market well (and logically), and those who don't. You should pay attention to what the smart traders are doing, and typically do much the same.

The indicator as of this past weekend is showing that the smart traders are opening put options to a relatively large degree over the last couple weeks. This basically means that they expect the market to fall from here. This indicator shows that they are demanding more put protection than at any time during the entire bear market thus far. This indicator does not move to extreme levels often, but when it does, I pay attention. The last times the indicator approached current levels were right near the May 08 and August 08 market peaks which led to large declines over the next 2 months each time.

Pete