My Life My Trade

Day-trade to be closed before end-of-day

I expect a minimum 5 to 7% retrace in IWM. This should bring TNA down by 15 to 20% depending upon how fast the move happens, bringing TNA down by $6 or so to $32-$33. I will bail out if IWM breaches Friday highs.

Will hold over the weekend.

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.

Oil should go up 5% or so, which means USO moves up by 5% too. That would be a $1.65 move in USO there by translating to almost a 50% up move in the calls.

Day trade – tight stop

EDIT: Mistakenly I had written $49 calls in the title of the post when it should have been $48 calls. You can go and check that the highest that the $49 calls have traded today is $0.67 as of 8:00AM PT.

Swing trade – tight stop