Daily Market Brief

Steady As She Goes

PT TweetYesterday before open I threw out the adjacent tweet. And no doubt yesterday proved to be a roller coaster that churned and probably threw a bunch of folks. Certainly the ugly close with poor $AAPL results thrown on top of it would have stopped many people out. Not I. The market action lower with increased fear actually cemented my trade plan for the rest of the week.

Exacerbating the oversold conditions it provided an opportunity to further scale into positions and to sell volatility  which proved to be a very profitable trade. While weekly call positions closed under pressure I raised the question how the market would react to the bad news of $AAPL. We saw no new low in after hours and to me that was a sign of positive divergence. Overnight we are seeing a hefty bounce that seems to demonstrate that last night’s sell-off into the close was a classic shake-out.

Trading is psychological. The psychology of others and the psychology of you. Emotions can run wild and sentiment can change on a dime. Very, very tricky to keep a steady hand and not doubt yourself as prices become erratic and subject to unpredictability. Try running a sub site with your trading calls for everyone to see! 😉

What works for me is to have a trade plan in context of technicals and an outlook. As action gets shaky I review if anything has changed in either of them and yesterday the conclusion was clearly no. So I stuck to plan and added to positions and established new ones. Steady as she goes.

SPXPer yesterday’s note I expect a re-connect with major MA’s. The FOMC meeting will provide a catalyst that may result in another quick down or an immediate push higher. The goal post is Friday. It is month end and the entire market has something to prove as we are, so far, looking at one of the worst Januarys ever. My ‘gut’, for what it’s worth, is that they will want to close January as close to flat as possible. Now we may still see a test of the 100MA or we may not, so for this reason it will make sense to scale out of positions as profits avail themselves.

Yesterday’s profit taking on $VXX was such an example. But here is my specific strategy:

1. Future contract exposure: I have added and scaled and will not add unless we hit the 100 MA area. My plan is to scale out of these on upper gap fills on the $SPX.

2. Weekly options: Decay is the key issue. If I knew where we close on Friday I could plan this better but I don’t. All I have is a working theory and a couple of scenarios I see as most likely:

Scenario a: We sell-off again and go straight to the 100MA. This would create further excess energy and would permit add-ons for weekly calls and futures.

Scenario b: We bounce higher into FOMC toward 1 or 2 key MAs. This would bring the weekly calls into nice profit. In this case I would take the profit on most of these calls prior to announcement. Fact is I cannot know what the reaction to the FOMC will be, my educated guess is that Ben will not let markets burn on his final curtain call, but I could be wrong on this and my calls would turn to ash. If markets were to continue to rally hard on Ben my futures positions would provide ample profits. If they tank after Ben my call profits would have been protected and I can easily re-buy for a month end rally off of the 100MA for example (2000 analog calls for a very large up day this Friday).

ESThe full risk approach would be to leave everything running bullish. Yes you could maximize profits, but you could also look at your own crying game. So prudence and discipline will be my game plan even if it means I might leave some profits on the table. As it stands I have 4 potential target zones for this week. At minimum I’m expecting the two lower zones to be tested at some point this week. A December FOMC repeat would permit a test of the upper tow targets this week as well. If not then they’d be more likely a target in February per the year 2000analog.


$VIX: classic rejection candle on the daily. It could certainly make another run for the highs, but most likely we will see a move toward the target zone once things settle, hence my Feb put position.


$IWM: Bounce off of trend line, heavily oversold targeting trend line re-test and re-connect with MAs


$GS: Valley of tears with no serious bounce as of yet, however vastly oversold and move into 170 area for MA re-connect and possible trend line test in February likely.

GS 1-27

$AAPL:  A walking disaster zone. I stayed out of it last night, but what’s the impetus to hold shares now that iPhone sales are weakening? The company hasn’t introduced a single new product of consequence since Cook took over. What’s the vision? Buybacks? Really? I suspect the stock will linger or drift lower for months until the company comes out with something that shows a growth path going forward. A move back to the breakdown zone may be a good spot to try a short.




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