Tuesday, June 23, 2009

Limit Order for a Potential SSO Trade Entry

As discussed in recent posts, it would be typical for the market to undercut the major support at 880 on the S&P before staging its first major rally attempt of this new decline. The short-term model is clearly oversold, but I need more than that in this case to go against a new trend in its infancy. I need to see the stops run below that support level in order to clear the way for a potential rebound.

With yesterday's decline, several short-term historical comparison studies suggest a solid bullish edge looking out 2-3 days. In this time frame there is going to be the FOMC announcement on monetary policy which does create the potential for a solid rebound. I have seen studies from Quantifiable Edge's blog which suggest that Fed meetings are more likely to end positive when the market is short-term oversold coming into the meeting (I believe a 2 period RSI was the gauge used).

Taking all this info together, I believe a nice bullish opportunity could present itself if the S&P falters from the open today and undercuts the 880 level. So I am going to suggest using a limit order to potentially enter SSO (2x bullish S&P ETF) on a slight move below that level in the S&P 500. That being said, my view is that this is a new downtrend, and there is certainly the potential for loss on the trade. If the order is filled today expect either a stop placement or exit by tomorrow. Anyone who cannot check for and act on blog updates several times over the next day or two should almost certainly sit out this trade.

Potential Trade

Place a day only limit order of 23.80 to buy SSO. I am not going to suggest an official stop loss on entry, but 5% (basis SSO) would be reasonable if you need one to determine position size.


1 comment:

  1. http://quantifiableedges.blogspot.com/2008/08/when-s-is-oversold-going-into-fed-day.html

    Above is a link to the RSI(2) oversold going to a Fed meeting that I mentioned in this morning's post.