Stock, Option and Futures Trading
Happy Thanksgiving to Everyone.
Going into tomorrow we do not trade the day after thanksgiving.
I usually do not enter option trades the week of Thanksgiving as well. Since we trade short term options there is too much time decay on a week that could go sideways. This year there was a big move this week but we were not aggressive even though we were saying how if the DOW broke 11,600 we could make a quick move down to 11,200 and the DOW is sitting at 11,257 now.
In the prior post here https://wwweminischool.wordpress.com/2011/10/23/spy-follow-up/ we were saying how the long trades were smaller trades for a quick move up into the $125-126 SPY resistance and then the move down could happen quick because there was only 1 leg to the upside. We have got that big move down and now we are getting to the point where we should bounce.
In the last post we were noting how the pattern looks similar to the 2007 – 2008 high. Looking back at that high the market did not bounce from where were are currently at in the pattern.
The 11,200 is a support number but the 10,400 is the last low. If we do take out that low we would most likely go down 2,000- 3,000 points on the DOW or at least make a move to 9,300. Patterns can fail and just because the pattern looks similar to the last high in 08′ does not mean we repeat that pattern. There is still a chance to have a short squeeze from these levels. It is not just if we short squeeze it is the result of the squeeze. So many people are negative here it almost feels like it is too obvious for a top.
Either way the next week will be important. We knew that when the DOW was 12k the longs were more of a breakout type trade which is more aggressive. When the condition is more aggressive it is best to trade less contracts or buy cheaper options. If the market tanks or goes up there will be great opportunity in the next few months as the range expands.
The thing to think about is as the market comes down where are the supports and what do the waves looks like down to the support levels. When I look at the SPY we are not even to the .618 yet at the $115.80 level. If you read the prior post from the link above we were anticipating a pullback to the $116’s. This means the pullback is normal meaning; if we can say the $116’s before we even make the high at $129 then it is normal. Since the wave up was larger than normal the pullback can seem like the trend has changed when in fact it hasn’t (yet).
The point is we are coming into a key level when the volume is light and traders are not at their computer. What seems like a easy short could reverse on traders and squeeze up when they are not watching. Something to think about for tomorrow and going into next week.