Back To The Old Drawing Board

UPDATE 12:16pm EDT: Well, I’ll come right out with it, rats – it’s not looking good for thee ole’ (short term) bearish case. Here’s a preliminary count which also seems to back up current Zero readings:

I’m a bit miffed obviously, as I ignored the early Zero signals and stayed short after this mornings drop. I was married to the idea that we’ll drop further to complete an a-b-c and got punished instantly. The market is a cruel mistress and one’s prejudices are usually dealt with quickly and efficiently. Fortunately I was playing it very very small – which I usually do when trading against the overall trend. So most of the damage was done to my ego.

I’m still a bit puzzled however and have a hard time buying a 1.5 day Minor 2 wave – just don’t feel right. Anyway, until I figure out what exactly is going on I’ll assume that we are in a third wave to the upside – if so then we should not see much flailing about – this sucker should push right through all those fancy fib lines on my chart. Let’s see what happens.

Psychology:

It’s sometimes hard to admit defeat and cut your losses at a point where it’s easy to assume you might be selling out right at the top. I always check my emotional level to make sure my brain is doing the trading. But I think based on what I’ve been seeing today as well as throughout most of March we should not underestimate the conviction of the bulls. It seems every little drop is turning into a buying opportunity and like it or not – that has been the reality for the past month.

And you have to draw the line somewhere – 804 was my line and I did not feel like waiting for 812 (fib line highlighted on the chart). Plus there’s a gap on the SPX I would be surprised if we didn’t fill today. Of course it’s possible the market is turning right here right now – well – if it does then I don’t really know what the fucking count  Well, scratch that – I would have an idea but it would be ugly.

In any case – I’m watching the Zero for a trend reversal – so far there is little indication for that to be happening.

UPDATE 12:32pm EDT: I decided to post Fujisan’s calendar spread tutorial she graciously posted last week:

This is what I would do for April. First of all, I would be looking at Apr open interests to determine the strike price. There are a sizable open interests at 80, 87, 75, and 70, but 72 has a very huge open interests. This means that the market is expecting SPY to pull back down to 72 area.

Let’s say that I would put on 80 Apr/May SPY calendar. This covers a price range of 75~85.

However, I’m concerned with a huge 72 open interests and this calendar only covers up to 75 for the downside. So, I could buy a cheap OTM butterfly (for $0.06 cents for today’s quote) as an insurance policy, which extends a downside PL curve up to 68:

Now, let’s say that SPY started to move to the upside, and I decided to make an adjustment by adding another 85 calendar (i.e, double calendar);

Or, if I have a strong upside bias, I could add a debit spread to make it as a Diagonal:

Once SPY hits the target of 87, I could sell the debit spread (or the second calendar) to take a profit or close the position altogether. I would probably hang on to the original position once the target is met and hopefully SPY expires right around 80 to make the most money out of it.

After the front month options expires, you can close the back month options, or you could keep them and make another spread by selling the same month options with a different strike price, or you can combine with a credit spread to make it as a directional butterfly or iron condor (if you are interested….).

UPDATE 1:15pm EDT: Okay, I’m going to go outside and kick a tree for a little while (for obvious reasons). In the interim feast your eyes on the new channel du jour:

Follow the red brick road….

UPDATE 1:33pm EDT: I went outside to broom my yard a little – very therapeutic – hey, it works for Shaolin monks!

In the meantime we breached my fancy short term channel and keep pushing back up (I shouldn’t complain). You know what rats – I think my time is better spent futzing with my evil.rat code – need to get that done. So, I’ll bow out for an hour or two if you don’t mind.

BTW, just for the record – you guys were all bitching and complaining about me yesterday – BUT – the quality of the discussion has improved vastly. Seems you rats just need a friendly kick in the ass every once in a while

Alright – I’m putting my nerdy hat on for a little while. Watch the tape for me in the interim.

P.S.: Proposal for FujiSan: Perhaps you are interested in doing a weekly ‘Fujisan’s Naughty Spreads’ session? If you put it together I’d post it. Could be fun and you seem to be the master of option spread magic. Rats: why don’t you pesker encourage her (ahem) until she says yes?

Hey, am I the only one who imagines Fujisan to look like this?

UPDATE 2:08pm EDT: Aaaah – SPX at 812 – I feel strangely vindicated

This entry was posted on Wednesday, April 1st, 2009 at 12:27 pm and is filed under Intraday Update. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.