January 27 - Market Commentary

With the recent slide in the market and headlines like "Is this the end of the Sucker's rally?!", people are wondering what happens now. I've been a long time advocate that this market has gone up too far too fast and needs a correction, but I am not predicting a crash in the scale of what we saw in late 2008 and early 2009.

Below is the daily chart of the S&P500, with RSI and MACD indicators:

Right now the decline is within the uptrend channel and has the same characteristics as the recent corrections within the channel. We are now seeing some support at the trend line with MACD ticking upward while RSI is below 50 indicating an over-sold position and a possible buying opportunity. I am not too bearish on S&P at this level, but will look to see if it will break the channel or bounce off of it.

I will look to initiate a long position, by buying shares instead of selling puts as I think the upside is stronger. I am considering SPY (S&P DEP Receipts) or SSO (Ultra S&P500 ProShares).
This will be a longer term trade and I will look to position myself for possible downturns.

Jan 27 - Google Follow up

So only 20 days after the Google trade I posted (January 7 - GOOG Trade) it has become profitable enough to close the position. Following the huge run-up in Google's stock leading to steep uptrend lines the stock made a rather fast turn-around to the downside.

Of course I am not saying that this is the beginning of a downtrend for Google, but merely a correction - which happened to make some good money for counter trend traders.


The short position in Google calls, initiated on Jan 7th @ $3.30/share was closed today at $0.05/share for a profit of $325 per contract excluding commissions.... not bad for a position held only for 20 days with no cash capital put up for the trade (margin excluded).

January 7 - GOOG Trade

Here comes the Google trade I've been watching for. After a huge run up, yesterday the runaway trend to the upside tested the uptrend line with a $16 loss. This morning there was no steam for the upside and the price moved below the trend line, effectively signaling a potential break in the uptrend and a correction downward.


How deep this correction will be or if it will be sustained at all is hard to tell right now, but I have gotten myself into a short position by selling FEB 700 call contracts for $3.30/share. I will profit from 3 different scenarios: 1) If the stock moves down, 2) if the stock stays stable and in range, and 3) if the stock moves up slowly, but too slowly to reach $700/share by the third week of February.

I realize that Google's earnings will come out before that, so I will try to trade out of this before expiry if it goes against me.