My current strategy as laid out in the last post is to be bearish over the course of another two weeks or so. But as expected in the same post, the markets rose today.
Tepid average volume and negative Tick data were remarkable. The Quad witching seems to be playing a key role here in keeping the markets afloat. Therefore, to me this rally is suspect beyond this week and should falter.
The thing that was truly impressive is the market breadth and consequent momentum. I cannot discount that. If my thesis stands to fail by early next week, my existing long hedges and huge 40% cash position will buffer my fall. And I will then use the cash position to deploy towards longs next week in addition to trimming my shorts. If my thesis succeeds, I will still be scaling out of my shorts, albeit at a profit.
Because I have a good buffer and because I have conviction in my call, I am not giving up on my thesis yet. I am not planning to enter any new longs this week and let my big shorts ride it out.
We have now two near term gaps – one from 9/02 and one from this morning. Given the lack of a clear all out buy signal today from my perspective, I believe we have the makings of filling at least this morning’s gap in a matter of few days, if not sooner.
If you are more conservative, then my advice would be to just stay out this entire week.
Open Positions
Long
- DLTR – Letting half of the position ride after booking 100% gain on the prior half.
- DBA – Keeping it open for now
Short
- KKD – Keeping it open for now as a play on September seasonality
- QQQQ
- CRM
Cash
- Maintaining a 40% cash position.
As always, will twitter any change in my set ups or strategy close to real time. The tweets carry more details on the trades. Use stocks instead of options to mitigate risks.
StocksRider
I expect the built up momentum from today to provide bit more upside for the bulls tomorrow. And then there will be a battle. Deep breath. We will get there.