Equity Update

Sentimentrader.com showed some data looking at when the market closes at a 3 month low and then makes an 85% up issues day the next day, like it did Thursday. Out of 14 instances 13 were positive 2 weeks later. Obviously that indicates a bullish short-term bias. Several of those were significant lows lasting many months or years. Some of them rolled over to new lows within 2-3 weeks. Based on pattern logic, I believe this one will roll over to new lows in a few weeks or less.

As long as there is short-term overbought indications below the 1175 area on the S&P 500, then I will want to bet against a sustained rally. I don't feel like now is a great time to start betting against it though. I'd really like to see at least some bearish divergence on the 60 min chart indicators like stochastics, RSI, MACD, etc.

Misc. Trades

For those interested in playing the anticipated bounce here are a few ideas.

EWI - an Italy ETF. This would definitely be a contrarian play, but the daily technicals look nice for a rebound.

I made a couple small purchases today in AKS (stop @ 13.00) and MYL (stop @ 18.70). I like the technical analysis and candlesticks on AKS and the steel sector is pretty oversold. SLX is a steel sector ETF also.

MYL is a biotech stock which I picked up on a screen for stocks with high short-interest (25% of float). After sharp declines stocks with high short-interest often make nice short-covering rallies.

SDS Trade Exit

I am going to post a trade exit on the open SDS trade from July here at 34.33. Pessimism is relatively high, and I feel there is likely a better chance to reload on inverse funds in the not too distant future.

SDS Trade Exit

Click on Chart to Enlarge

The S&P rose all day after the first couple minutes. On this cash chart this created a nice looking hammer candlestick. From a pure charting perspective, I really like this for a bullish set-up and long trade. The intraday low went below the Feb low possibly running some stops there. That may bring a reprieve to the selling at least short-term.

Click on Chart to Enlarge

This chart is of SPY which is the ETF that tracks the SPX. Notice the different candlestick pattern because the cash index SPX is calculated differently because not all stocks in the S&P open for trading at the same time. Some are delayed 10-15 min, so the cash index will not always look like the ETF.

SPY made a belt hold or meeting line candlestick today which is a bullish candlestick, but not one of the stronger reversals. However, since the market did not accelerate down after the big gap down and it closed above the Feb low and Friday's low, I don't want to remain in SDS for the short term.

I think the best opportunity will come with a move up into next week that fills the gap down around 112.00 as a place to short/inverse. The problem with going long here is I think the stop has to go below today's low for a swing trade. That's about $4 risk. But the flash crash closing low and that first unfilled gap are only about $4 above today's close. So the risk to reward is not that good.

I am tempted to get long here, but will just exit the SDS and see if there is a rebound and how strong it is. Then we can either short at higher levels or look to go long after a pullback to a higher low.

Place a limit order of 35.53 for tomorrow to exit the open short-term SDS trade.

Crash Warning

With a large gap down indicated this morning, I just want to suggest as I did previously that if the market goes below Friday's low, that will be out of character for a normal market - it SHOULD rebound. While probably the most likely thing is for a big gap down and then buyers come in right away or later in the day, I believe this could end up in a big single or multi day selling panic.

I want to be part of that on the downside and I believe the risk reward is reasonable to enter at the open with stops corresponding to yesterdays lows in the inverse funds. The S&P 500 right now is projected to open around 105.00 which is below Friday's low. If trading SPY short I would have a stop at 109.50ish. I personally am going to recommend a buy on SDS with a corresponding stop.

New Blog Trade:

Buy SDS at the open and then place a stop at 34.50 immediately after entry. For better or worse this will be volatile, so make sure the position size is appropriate.

SPXU Trade Exit

The open yesterday was 35.83 which is the trade exit price for SPXU.

Just a Heads Up

This post is a just-in-case post for a scenario where the market gaps down big tomorrow and doesn't appear to follow through on this rebound.

If there is a big gap down indicated tomorrow, then I would suggest removing the sell limit order on SPXU and place a stop instead at 34.85ish/Friday's low. The market/S&P 500 SHOULD hold Friday's low for at least several days. If it doesn't then I truly believe there is a chance for a "crash" type scenario.

I have looked at charts of several countries' stock indexes, and I do think a sharp rebound is most likely, but I just want to have a general plan if that doesn't take place. I may post in the AM tomorrow.