Wednesday, October 14, 2009

Are We There Yet?

I think most of us watched that tape wondering if this was finally going to be a blow-off top, gap fill.. or anything to provide a solid hint to answer that age old question from the kids in the backseat ... "are we there yet?" If patience is a virtue, I think we deserve sainthood at this point, but let's attack this one day at a time. The good thing is, we're now only two days from OPEX, and should have more clarity going into next week's action. Meanwhile, this bear has had just about enough of this straight up tree climbing, but if you look very closely, I think he has a little friend down there waiting for him below.

I think Gred made a very good reminder today - we can trade this tape up and down like pros, and the opportunities are screaming out to do so while waiting for a pullback. As traders, we should always be opportunists.

Let's move on to some charts- some that I shared earlier with Osso this afternoon. Most of you already know that I don't chart EW or DeMark, so if you'd like to contribute charts to discuss and share, please do so. David can scold us when he comes back. :-)

and I've added a 100 SMA- value currently at 1106.64. This is near the upper envelope target from T. Landry today of 1106, so I like that dual method confirmation. But we'll see....

What I find "interesting" about this chart is the lack of curve after nine days of a fairly parabolic price move. I am surprised to see it in a sideways position. If you'd like to also check this chart on your own via StockCharts and switch the settings to "dots," instead of "line," you'll see the noticable consolidation taking place. Just something else to keep an eye on.
For those not famliar with NYSI, it's used as an indicator of money moving in or out of the market. Right below the chart I've added the money flows that were also rather revealing today. Although BalaB was tracking MF at one point, and found it to not be highly indicative of direction, it is an interesting piece to the puzzle tonight.

As promised.... Fuji has delivered a fantastic GS trade for those interested tomorrow. She has designed this for beginner options traders (that would be me!) Enjoy and good trading!

GS Current Chart

Here is Jan 2010 Put Option with 220 strike price

Here is a play book for the single option:
1. Do not buy the front month options.
2. Always buy the options more than 60 days to the expiration.
3. Avoid OTM (out of the money) options.
4. Close out your position before 30 days to the expiration.
5. Set up both time and price stop to avoid unnecessary time decay.

One of the benefit of having the deep in the money position like this is that this position acts similar to the underlying equity; i.e., delta is close to 1, so it's less subject to other greeks like theta and vega.

Addition: This chart is from ZigZag- a beautiful fractal of 1974/2009 with counts.

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