I look at these indexes very closely and would suggest that we should closely watch 1299 resistance today on SPM, we go thru it and we stay above it for some time I would consider that break of 1292 my long time objective of this correction is achieved and for some time we can trade with a positive bias-
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I will think that we are at key supports on PSE 506 level, SOX 372, DOT 540, IIX 274, RUT 430. I will like to change my bias and will certainly go long by selling NDX puts 1840 and buying individual stock and the DOT index. I will like SOX to take out 385, I will be looking to go long MOT TXN LSI LRCX AMAT, if 372 holds and we move up to 385.
If SOX moves definitely PSE will show a good move I see no reason to go long EMC at 520 a shade above 20 days MA of PSE, CSCO will be my other choice and I will top it with NOK LU..
As SOX and PSE make the move BKX will see 810 area but above 840 MER JPM WFC C are great buys, however I don't believe in catching a falling knife let these indexes improve from these supports, I will keep a close eyes on RUT if we go through 430 we will see a huge sell program to test the supports, anyway we are below the 50 days MA on most of these stocks and indexes and certainly it is worth to keep entries very clearly defined.
On DOT my picks are CMGI EBAY ATHM EGRP SCH AMZN AOL above DOT 574 for a trip to 625 area if we get above it we go higher to test 652 if we fail at 600 we go down hard to test as low as 450, I had this magic DOT 592-595 area to go long yesterday we flirted around 591 and reversed hard, it is these inter day resistance and entry points which makes my day and save me from whipsaw. No trader should ever jump in the market because he likes the price wait for your index to give you that initial cue.
Now once i give my levels the trading part is about defining and keep improvising, if market could be defined and charted the fun would just disappear, our job is to cover basis well in advance and than go for the kill, anyone reading this thread would make that kill easy as he perfectly knows in advance what is going on. We are not trading in dark. That is the purpose of these posts.
We have one of the good quarters recently based on which we had this 1430 target and beyond but it is always an art to go long get your money out at top of the market and get in during sales, again to find basement prices is another challenge, we take it seriously every day.
I am looking at NDX 1980 and COMP 2380 as levels which should hold say plus minus 20 points also 1278 may be tested to run stops or 1250 if a huge sell program hits strong, but here is a level I would like my 1250 long puts bought for low price hedged with 1840 NDX puts I will be long near the money SPM puts and short 9% out on NDX, if market rallies I will like to leg out of 1250 longs at 1304 level and let the NDX puts run naked. Ideally this correction should run its course in next few days with a bounce now and a sell off again, or may be no bounce and sell big like 8th Oct or 27 Oct 98 and 97, I think DOW should test that 9800 level and a good probe of 1230 will give this market solid support for summer rally. The conditions of 27th and 8th do not exist, but a possibility has to be accounted for, that would take this retracement to incredible 1740, where we saw the break out back on 25-28th Oct 1998 we have never visited that area again, but it is an outside limit of my thought process, I would wait for that 1292 to be a false break today that gives me initial long signal.
Catching a bottom is difficult however if you get in within 2-3% it is great, I will like always to give up few points and enter late for aggressive accounts selling 10% to 15% out of money puts when we have seen a 10% correction is good strategy, however I maintain that for that use 50% premium to buy 1230's long on SPX... never sell puts naked, it is recipe to pain and disaster or a call, cover them, sell individual stocks puts but go long the index of that stock if 210 of CMGI is sold buy DOT 500, use half the proceeds to buy a protection, and other half to go long, if you want some premium you need insurance first. If put premiums are to be utilized for long trade use them above key turning points.
For 1230 and 9800 test to materialize two possibilities exist either a huge downdraft where we see a 50 point move on SPX in a day, a close at lows and bounce next day this would create enough valuations for a sustained summer rally or the other situation is we fill this gap at 1292 and 1980 and 2360 and move up to say 1318 area to come back and retest this 1230 level. I want you to be well prepared for any of the two moves.
Europe will give a positive cue today most likely and Nikkei will be a good buy. Stocks like Soft Bank can also give you a good proxy against DOT improvement, but I would resist temptation and go long after I see momentum, the best for me would be sell 10-15% out of the money puts against my long SPM very near to the money puts. If someone who is cash this is ideal to start with 20-30 percent and average it over next few weeks, however 1302 for that is ideal level to enter not before. A close above it for two days will give you good indication, on the other hand like a close below 50 day MA for last few days is poor indication for the market and one needs to be careful while bottom fishing.
I will be in the game and will try to leg out of my long leg after 1318 is out, the short premium is huge and will give me good profits, I can do that on BKX 720-760 also, with so much of bearish sentiment this can be a good trade.
Short puts to see them wasting as market rallies, here we have many possibilities I try to cover as much but one needs to be aware of various moves, one thing which will certainly put a support under this market is lack of global markets responding to sell off rather it is a blessing in disguise to see over heated DOW being cooled, it is we who are in it every day think that values are emerging but for an outsider who happens to see and watch US markets with a traditional barometer like DOW, it would be nice to see it in 4 figures.
I would as suggested earlier like a base for summer rally from the lows, it would be healthy for the momentum players if they can hold the fire and wait for the test of 800 500 on BKX DOT, but I would like to take advantage of the window of opportunity resulting from this huge drop, we will see a bounce off 550 a sell off again after a move up of 50 points like 612 on DOT and 1318 on SPM, if some one expects it is going to rocket up from lows I doubt it, market needs confirmation from macro-economic numbers right now it is few days until meaningful data convinces markets of its future course, for me right now it has to be a dead cat bounce until 625 on DOT is decisively taken out, those who want to take advantage of this dead cat bounce would need to be nimble but I would do nothing unless 1299 is taken out solidly for that bounce to materialize, what is a solid take out means, I like index to break its resistance and stay above for 45 minutes to one hour minimum. in our jargon of day trading 1 hour is a long basing period, again this is just to avoid whipsaw.
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