Monday, October 25, 2010

Resistance ahead. Trade Safely.

No, I am not turning bearish. Just that there are quite some important resistance levels ahead and I think the correct play now is to protect your profits and keep some cash handy. For quite some time, I have been talking about the weekly MA(200) level on the S&P. As marked in the chart below, this is exactly where the April rally ended and the market got rejected right at this level today. And in case this level is taken over by the bulls, 1200 lies right ahead and it also wont be an easy nut to crack. 

I am beginning to like the odds of a pullback here but am in no way turning bearish. Not till the MA(20) gets broken on S&P. The last time the market was below MA(20) on the S&P was at 1180 level and we have come a long way since. It has held as support on many occasions since then and is an important support for the bulls. 

To sum it up,it might not be a bad idea to have a decent cash position here. I would rather use the cash position as a hedge than short positions.

Take care and good luck!


Anonymous said...

Hi, this is Ivan - I was wondering as you talk about profit protection in bullish markets like this - what kind of downside protection you choose - VIX calls, SPY puts, VXX, or you just take few shorts?
I don't see convincing shorts last couple of weeks and they have not been working lately, anyway.
Great blog!

Anonymous said...

are you turning bearish?


positiontrader said...

Hi Ivan, for the moment I am moving my stops closer and keeping a decent cash position. As you rightly state, shorts haven't worked that great lately. Moreover, shorting here is like calling the top, something which I don't like to do.

And I avoid VXX unless for a day trade! I would rather go with some double leveraged inverse ETFs.

Glad you like the blog! Thanks for reading.

positiontrader said...

No Dave, not turning bearish! Cautiously bullish, yes. Not bearish until MA(20) breaks on the S&P.