A trending move is very near. I know this because I am becoming disillusioned with the market. I’m starting to not care, the swings have been too short to swing and overnight positions are getting gapped one way or the other. The guys/gals who start trading depending on how the market opens are doing well. I was talking with my trading friends (outside of this blog) and I mentioned a few points there yesterday.

1. I was worried about a MACD cross up before we head lower, which price had to move higher first. (Check)
2. Was worried about a 21d ema test before going lower. That was posted also here. (Check)
3. I was talking about despite being right by being short, it was extremely unsatisfactory in terms of gain and overall satisfaction.
4. RSI positive divergence printed the other day that didn’t produce much up.

From what I can tell is that today was a make up day. The market should have gone up further a day or two days ago. With the excuses (news bits) that came out it was fuel to squeeze the shorts. However, the market needed to make this move. There is room to move a little higher, but the trend hasn’t change it was just a nice move. A really nice move.

This morning I woke up late around 10:15AM and dumped my EDZ and TZA positions eating somewhere between 7-8% loss. About 10 minutes later I rebought TZA and then 5 minutes after that sold it and was done for the day as I saw it was trend up stair stepper. I did keep my index funds short and did not touch that position.

Its becoming painfully obvious that trend trading over the summer is becoming a bust unless you get out at oversold/overbought levels. The problem or mistake I looked at on this trade was that I thought we would break this time. However, we have been talking about in the comments over the last few days that its probably not going to break (if it breaks) until after Labor Day.

One interesting item is that the monthly charts flopped to the downside on all 3 indexes. With the monthlies there is alot of room to screw around. Right now there is some screwing around.

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The market is sitting right at the same boring level it has messed with traders for the last 4-5 days. Right at 1050 SPX.

With so much news coming out overnight and tomorrow you would think it would be stupid to have a trade on in front of it. Well I don’t trade the news. Never have.

What I’ve learned is that news doesn’t matter. Well it matters sometimes, but that is such a rare occasion when it can change the trend.

The trend is down. News flow no matter what the positive or negative aspects of that news should ultimately give way to the trend.

There is a chance though that something like the 21dema gets tested before making that new low. I will most likely cover my shorts if that starts to happen as I am not good sitting through pain waiting for a larger theory to unravel. Even though that is how the market often acts when trend trading.

Currently short heavy the 2x inverse, TZA, and EDZ.

If the market closes anywhere lower than today, or even opens lower or moves lower or anything lower than today’s close…I’m looking for 1020 SPX.

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Still short. Friday sucked, today was nice. We should move to new lows. However, this is likely to setup a nice reversal once again. Trend is your friend though.

I’m starting to see weekly oversold kicking in today which typically means its going to stick on Friday. Which further means that we will go lower intraweek if not all week long. The weekly signal setup coming on is not even a full trend reversal type thing. However, I don’t want to get ahead of myself and will reserve judgement until the market puts some more data under its belt.

Imo, 1040 on SPX is not even important anymore. Its 1020. When the market cock teases like this, they are saying 1040 is a) going to get tested certainly, and b) the people that bought it last time are set to buy it again there. However, the market is setting up the b) group.

Once again, and I don’t mention this, but I have lots of my own stock screens that I check daily. Many more stocks flipped to down today than up. The whole emerging market complex flipped and it was teasing last week.

What I did? Kept my index shorts. Bought FAZ. Will load more shorts tomorrow if we break today’s low.

I wonder why I’m not hearing any advice or tweets to “not catch falling knifes” or “don’t be a bottom picker.” Does that mean everyone who I think is smart is buying the bottom? I’m seeing the beginnings of a trend and technicals getting destroyed just in time before the big money comes back from St Barths.

Some examples of why being short the market makes sense here.

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Which pattern is going to happen?

I think there is a chance of both. A possible slip to touch support and a pop. If we gap up and run we gap up and run that is fine. However, I moved back to the short side adding EDZ, FAZ, and the 2x inverse funds. The reason is simple. Its a down trend. With everyone concentrating on the inverse head and shoulders pattern, I’m thinking double bottom.

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This morning I reduced my shorts as planned. Actually the plan was to go to cash as noted in last night’s post, however, I reduced to 25% short and decided to keep something with the trend. The reason for my reduction is that the market was oversold and I had signals related to this condition.

This was a trade that started on 8-13-2010 at the close. I mentioned it in my post Suck It Up Buttercup, and Daily Charts Oversold, I Don’t Care.

However, this trade is not over imo. I am just managing the trend trade at where I think its appropriate. I considered going back to full short today at the close as oversold was relieved. However, I think there is a chance for either slightly more upside (and I do mean slightly), or I made a mistake by not adding. I will add to my shorts tomorrow if the morning price action is up. Pretty much no matter what.

Aside from reducing my inverse funds position, I sold my FXP this morning for a gain, and then went long TNA and sold for 1.5% – sold way too early, despite having signals to stay long.

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Market is at an interesting point here. Right above the 1050 SPX line, with some oversold readings, I could see the market putting in some kind of bounce. However, the indexes are so precarious and in such a bearish posture that the bounce won’t last long and/or oversold can do a 2-4 day move. We also have the possibility of a 2008 type move where oversold will get pinned, however, I have a feeling that type of pinning won’t happen until after the summer is over when the volume comes back. Alas, its not my place to guess on that. Market could drop or pop as it pleases.

My ideal scenario is a gap down tomorrow then an intraday rally. I would like a nice exit opportunity in the morning and is where I will sell the remaining 50% of my shorts and look to reload 100% shorts on an up close. This is my game plan for this week. If it doesn’t materialize I will go short regardless on Friday. If we get a pop out of the gate, I’ll just reload the shorts and eat the loss on the current shorts. If we drop into carnageville I’ll keep my shorts without adding.

What I Did Today

Closed my TZA for 10%/7%, sold half my index funds for 3%NDX-SPX/2%RUT, and played some FXP and EDZ intraday that ended up being small losers. It was a little difficult intraday as the market tried to make a couple of moves to the upside, but it wasn’t there. Current positions are FXP and half position long the NDX, SPX, and RUT 2x inverse funds

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