Monday, June 22, 2009

SDS Trade Exit and Waiting for a Possible Bullish Set-up

This morning the 58.06 limit order was hit for SDS and the markets continued down all day allowing anyone to get out at a good price. This resulted in a 4.14% gain for the posted blog entry and exit. My guess is that we may see some more downside tomorrow or into Wednesday before the FOMC meeting.

The FOMC announcements have typically led to market gains in recent months. While I don't know if that will be the case this time, any further weakness tomorrow will clearly tilt the short-term odds to the bulls side (they probably are already), especially if the S&P breaks below 880 at least briefly. If the S&P does fall below 880 tomorrow, I will likely suggest a trade on SSO or QLD hoping to catch a quick rebound after the break of the first support.

However, I will be extremely quick to get back in a bearish ETF trade at the first signs of another short-term overbought signal. Today basically was the nail in the coffin for this rally from my perspective. I feel almost certain that the markets will not see new highs for several months at a minimum, and probably more.

Strong gains on FOMC meeting days tend to be reversed in the following days to a large extent, and fading those moves has worked like a charm for past blog trades. So it seems like a lot to ask for, but pronounced weakness tomorrow could set up a nice bullish trade, with the possibility of a great bearish trade entry shortly thereafter if there is a large rally around the FOMC meeting. I expect volatility to start to pick up quickly, but would encourage short-term traders to not get too aggressive on entering short/inverse trades until we see the first bounce/overbought signal off this breakdown.

The current BGZ trade is now profitable as of today's close, and market conditions justify a longer hold. I don't expect to exit this trade for a few weeks or more, so while it can be nerve racking to watch these 3x ETF's go up and down, I plan to just let things fly a bit before getting a profitable stop in place.


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