Thursday, July 12, 2012

Intra-day Bounce And Infinite Patience.

When we are dealing with the derivative of a derivative, we have to be extra cautious. That was the case today with UVXY. The Ultra ETF of VXX.  On a normal day, while I am working on routine staff, from the corner of eyes, I also keep track of the market on 20 different flickering indicators / markets. When the /ES reached 1320-21 level, I stopped what I was doing and started concentrating on the market. For about an hour it refused to break down and something, I am not sure what, may be intuition, made me close the UVXY. I could have hoped that /ES will break down from there and we go down, because that is the ultimate road map. But maybe not today. Whatever it is, I closed the trade and tweeted. I also said that I am expecting a bounce. I am glad I did because UVXY came down to $8 before closing little higher. For the last 4 days, the markets have rallied from the low and have erased the losses somewhat. It does not mean the correction is over. It just means that they are trying their best to honey trap more people. SPX has been down six days in a row and is due for bounce. Tomorrow JPM and WFC earnings report is coming out and both these were green today. So it’s kind of interesting situation right now. But I would definitely stay away from going long here. Rather I would add more short at a higher level if I get a chance.

My call for SPX 1200+/- few points by end of July or 1stweek of August is still very much valid. Any bounce that we may see from tomorrow may not go beyond next three trading days, which is Tuesday, 17thJuly. If we see that SPX has reached around 1365 by then, that would be the invitation of the lifetime to go short. (My views) Last night AUD made a dramatic and sudden fall from 1.0250 to below 1.010. It was no wonder that it was a risk off day to start with. Bonds traded higher, crude moved up and down $ 85-$86 range and gold is trying to claw back some of its losses. Yesterday I added short position on crude and it is updated in the model portfolio.

On different forums I still see folks are either long or getting long hoping for a bounce. And I wonder, is this what is called picking up pennies in front of a steam roller? Why can’t we just wait patiently for a better entry point? But greed is the most motivating factor in stock trading and emotions always win. Folks will have suicidal tendencies and no amount of preaching discipline is going to help.

That’s all for tonight. We just wait patiently for next few days for the market to show its cards. Thanks for reading . Join me in Twitter (@BBFinanceblog) if you like to share my comments and market actions.