S&P Deterioration

Calendar November 26, 2007 | Posted by Jorge

After the hype I warned you about on Black Friday, the S&P, and the market as a whole, ramped up into this morning’s trade. As we’ve seen in the past, the market has been unable to sustain any sort of rally for an extended period of time. As a result, the market has been deteriorating over the course of the trading day. I’m going to attempt to show you what folks on Option Addict dot net have shown me in regards to support and resistance levels and different types of indicators and studies.

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If you look at the chart, you’ll see these blue lines with percentages tagging the lines.  These lines are called Fibonacci Lines.  For more information, take a visit to Investopedia’s description of Fibonacci Lines.  While not a completely accurate way of predicting trends, take a look at the past couple of months.  You’ll notice, with a couple of exceptions, how the S&P tends to bounce off the lines almost as if they’re resistance/support lines.  Couple these lines with the lows from August and April, if the S&P violates the 1415 level, expect a quick drop to 1370.  If we violate 1400, I think we can officially call this the start of the bear market.  Bear markets, from what I’ve heard, are volatile, make no sense, and are extremely hard to trade in.  More of a challenge for us I guess!

Thanks to the Option Addict for the information.  As a result, I purchased some OTM (3 strikes out) SPY puts around the 1440 level.  With the S&P closing under 1415, the put gained approximately 40% in value and landed in the money.  I’ve begun to define my trading rules a bit more and as a result closed the position out, resulting in burning one of my four daytrade credits (since my account is under $25k).  In any event, passing up a 40% gain is not something I was going to take lightly after the rough couple of months I’ve had.

Be careful tomorrow.  If we drop below 1400, 1370’s next.  Protect yourself accordingly!

Category Categories: Market Pulse | Tag Tags: | Comments Comments

  • classic reverse head and shoulders action. I would be all in cash were I not fully vested. However, I did get some good action on AAPL, INSP and BFLY today.
  • We were due for a rally although I didn't figure it to be nearly 600 points in 2 days. I've learned to try and stay market neutral at this point with the wild swings we've been having.

    AAPL's going to have a great holiday season if you ask me. If I had more capital I would have jumped in just like you. I would think about picking up AMZN around this point as well even though folks like Cramer don't necessarily care for it as much. They'll have a great holiday season as well. Can't beat free shipping especially when it takes over $40 to fill up my fuel efficient Honda Civic.
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