My Life My Trade

Market Outlook: Here is the hourly chart for ES as of close on Friday Jul 10, 2009. IMO, the close was very bearish. Here is why:

• ES is still nicely within the down-trending channel and is at the upper boundary of the channel. So the next move should be down if the channel is to be respected.
• The down moves in this channel have been vertically down. A near vertically down move would take ES would mean a dive of 25 to 30 points, bringing ES down to 845-850 level.
• The bounce from ES 865 level has been very weak. ES barely managed to peek above ES 884. This means that price levels above 880 have been thoroughly rejected.
• The action in last few hours of Friday Jul 10, 2009 was even more telling. ES had a had time staying about 875 level. (See the area within red rectangle in the chart below).

What the area in the red rectangle above shows is that price levels above ES 875 were time and again rejected. And that the market is readily accepting price levels below ES 875.

What I see next happening with very high probability is:

• New monthly lows on ES – possibly as low as ES 850 (psychological mark – will not be breached the first time)
• ES will breach Wednesday lows of 865.25 in the Sunday evening/night Globex session

Caveat 1: You must have noticed how the news flow has turned very negative all of a sudden. The P/C ratio spiked last week. Too many people have leaned bearish very quickly. There is a slight chance that there might be a counter-trend bounce here. But the probability is very low.

Caveat 2: Just as the market is about to break through key technical levels, our Timmy boy Geithner has started to make appearances again. Over the weekend he has started to make his *positive* statements. Usually this is an indicator that the government is about to intervene and prop up the markets in a much stronger way than they have done in most recent past (= last month or so). So, I will be wary of going short in too big a way here.

My posture going into weekend: Long oil, solar; Short financials, real estate.

Going forward, all the trades for a given day will be posted in the comments section for the “Plan & Trades” post for that date. I will stop making a separate post for individual trade. It just unnecessarily increases the number of posts making it a huge inconvenience to go through the blog.

At the end of the day, I will summarize all the trades and edit the “Plan & Trades” post to include the trades here.

Plan for Jul 1, 2009: Ahead of the long weekend, I expect lighter trading activity, and it usually results in an upward bias. Additionally, all the bears and lots of bulls are looking for a quick downside here given that Q2 is over AND the possibly non-existent window dressing is over as well.

I expect us to chop around in the range between ES 908.5 and 918 with an upward bias. If we visit the lower end of the range, I will start to scale into longs. If we visit the upper end of the range and breach it, I will look to add shorts around ES 926, ES 930 and so on. There is a good chance we might create a higher high than today.

I will use Jul options mixed with Aug options till Thursday. I do not intend to hold onto any un-hedged Jul options beyond Thursday mid-day. If there is a position that I want to hold over the weekend, very likely I will roll over into August options. The goal here is to eliminate as much of the 3-day theta burn as possible.

Trades for Jul 1, 2009

• SELL FSLR Jul $160 Calls @ $8.80
• BUY CME Jul $330 Calls @ $3.30
• BUY OIH Jul $100 Puts @ $3.30
• BUY USO Jul $39 Puts @ $1.35
• SELL CME Jul $340 Calls @ $2.25 (hedging the Jul $330 Calls esp ahead of long weekend)
• BOT a bunch of puts on GDX, GLD, PCLN, AAPL – details later in the day. Got to go now.

DISCLAIMER: Nothing contained anywhere on this site constitutes any investing advice or recommendation. Any purchases or sales of securities are solely at the discretion of the reader.

I am looking for a gap down below ES 900 907 tomorrow and a revisit to ES 892 900, move further down to 884 892, and a close right above ES 892 900.

• Cover all shorts if last week’s high on ES (=919) is exceeded. If ES prints higher than 919, then we are going much higher, possibly 927 or beyond.
• Add short positions on breach of Friday’s low on ES (=908.5). If that gets breached conclusively, then we are headed to ES 892.
• If ES 892 is reached, cover 25% shorts. I believe that market will easily accept levels below ES 892 this time around.
• If ES 884 is reached, cover 50% shorts, leaving 25% for a further ride down. I believe that ES 880 will not be breached the first time, though.