Potential Trade if Nov Lows are Broken

Click on Chart to Enlarge

The chart above is the S&P 500 as of about 3:00 ET Monday. It is ever so slightly above the November lows of 741. I think at this point the likeihood is high that those lows will be violated before any meaningful advance. On the flip side, a break of those lows will likely bring a lot of the "retest" crowd back into the market and could be a very explosive short-term move which I would be interested in trading. So for the near future, I am going to switch to short-term bullish mode and look for signs that this decline is over. A 35 point advance from its lowest point (or a $3.50 advance in SPY) would likely indicate that this phase of the decline is over. A significant gap down tomorrow morning would also be a potential indication of exhaustion.

If the Nov lows are broken today or tomorrow, then I will almost certainly recommend a trade on the blog. I would probably suggest QLD as the fund to trade. But let me make clear that this would be only a short-term trade, NOT NOT NOT a trade to get "stuck" in for any reason. It would be counter to the larger trend which is extremely negative over the next few months in my opinion. For that reason, any beginning trader should probably not even try to trade it.

I believe that any large advance off the recent or near-future lows, should be the best opportunity we will see for a while to short the markets or buy inverse funds. Also, this would be the time to either buy, or scale into, index put options in my opinion.

We'll see what happens.


Pete