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Thank you for the feedback regarding my 12631 post last evening. Ragin Cajun and I welcome all comments and questions about the premium service we will launch inside The PPT on November 12.
Turning to the market, the swings over the past two days have been enough to push some of the more emotional traders over the edge. I have found that the best strategy in these kinds of situations is to have a definitive plan, and here is mine. As you know, I adopted a more neutral stance on the market during yesterday’s sell-off, while many others were declaring a major top. I have plenty of long exposure, but took out a small insurance policy in the form of $SDS (ultrashort the S&P 500).
Despite how potent today’s snapback rally seems, the updated and annotated daily chart of the S&P, seen below, illustrates that the prior support trendline has not been recaptured. My plan is to hold on to my hedge until the bulls can negate yesterday’s sell-off, by way of reentering the steep uptrend line since September. If that happens, I will quickly sell out of $SDS, and return to being bullish on both short and intermediate term timeframes.
Should today’s rally fizzle out, I would grow more cautious if the bears could breach the rising 20 day moving average, currently sloping up at 1158. The bears are looking for that prior support trendline to now turn into current resistance.
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I’m with ya!
Chess, where do you currently have the trendline?
RIght at the highs of the day at 1181. If we breach that to the upside, I will remove SDS hedge.
Thanks. I had it about the same. Time will tell.
Thanks Chess. What magnitude and/or duration would you consider a successful breach?
If we fail to recapture trendline we could chop around a few days, putting in a nice flag and then recapture the highs. A possible scenarios at least, this market may be too impatient though,seems to want instant gratification like the majority of traders(unfortunately).
Chess,
Why not hedge with FAZ vs SDS?
Too much leverage for me, and financials had already been beaten up.