So Monday never happened apparently. While I knew a bounce was coming and I was positioned for upside I ended up taking profits too soon expecting a rather large gap to be filled for a retest of lows. Silly me. Gap, run, chase, panic buying and covering. That’s what we saw yesterday as so many times before. Yet a closer look at the charts reveal not exactly a convincing move here (see charts below). Incidentally a 4 week treasury auction was held at 0.00% and it was eaten up. People chasing money in to get a return of 0%. Strange times.
Yet it is OPEX week and erratic moves are its hallmark so in this sense I should not be surprised. If you look for specific fundamental reasons for the rally yesterday forget it. A slight beat in retail sales ( flat if you include revisions) overshadowed Fed speakers making it clear that tapering will continue and maybe more aggressively so. Bank earnings were so so and looking at the released data by Wells Fargo make one go: Hm…
But so it is. Tops are processes and this one is as drawn out as they get.
Nothing has changed on the broader outlook, the upside risk I described of up to 1860 $SPX remains with a monthly low in the 1780 area still very much in play. All the indexes see their 50MAs rapidly approaching their recent lower trend lines and I still expect a test of these in January (see charts below).
Of note overnight the #DAX has raced right into its previous highs and is adding to futures potentially gapping up again for a 2nd consecutive gap up. Those are cute, but tend to get filled.
So for this week I will maintain my approach which is to scale into swing short positions on indexes and $VIX long. As the upside risk is real I know I’m likely to incur some short term paper pain, but that’s how swing trading works. So I remain patient and will use wide scales. At risk right now are my weekly $IWM puts that I scaled in yesterday. With a gap up they would be further under pressure and today’s POMO will likely not help the situation so I may be tactical here and close them on gap fill. $BAC will report before open, earnings are expected to be good and the stock has run up for weeks. Per yesterday’s chart in the feed gaps below may get filled. We shall see…
Charts with notes below: