The S&P 500 has trailed exactly down to its 20 day moving average. We certainly should see at least a cursory (reflexive) bounce here. The question is degree. Economic news this morning is not so great - we had disappointing news out of Research in Motion and Hewlett Packard, but fundamentals mean little to a market run by HAL9000 and easy money. All it cares about is technicals.

id=BLOGGER_PHOTO_ID_5385409692895488818Until proven otherwise i.e. a break of the 20 day moving average - I have lifted a good amount of short exposure and replaced it with some index long (levered ETFs and calls)

Another reason to be bullish is crude oil has traded in a range of $65 and $75 for months on end; and its at the low end of the range. So if crude is to rally then the very tired correlation between weak dollar = run up all risk assets must come back into play. That means we are about to see the dollar weaken to keep this months long pattern in tact, or we are about to see a very major change as crude crashes through the lower part of its range and the dollar goes flying to the upside. One might also ask if a very bearish double top has formed in oil (mid June, mid August) - it will look obvious in retrospect if the market begins to sell off, dollar rallies, and crude crumbles. But as we said yesterday, being anticipatory has done nothing but hand people their teeth for half a year ... we'll adjust if this scenario plays out.

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Until bears prove themselves it is hard to side with them for more than a few days. I'll be happy to join their side if they can break support. If S&P 1040 breaks I'd expect a quick drop to S&P 1020, so we'll flip the switch 180 degrees if that seems to be the pattern.

For now:

  1. Sold all puts (October 105s) bought yesterday morning.
  2. Sold the doomsday insurance fund which is a 3% allocation into a long term put - in this case October 95 puts (SWGVQ) bought about 6 weeks ago, roughly a 85% loss. These things don't work very well with a market that is up 8 to 9 days out of every 10. I will be looking to buy a December batch to replace this in the coming days.
  3. Covered a little Wynn Resorts (WYNN) just out of crying uncle scenarios.

The next 48 hours will be very interesting (48 market hours that is: today and early next week) ... if bulls don't do their normal dip buying and we reverse back down through the 20 day, this will be the 3rd negative reversal within a week. That would embolden bears. If the dip buying works than its just the exact same story we've had for 7 months.

For now I assume the pattern of dip buying continues, until I see evidence to the contrary. Keep in mind the monthly jobs number is next Friday which will be another binary event... and earnings season follows shortly after. It's about to get a lot more exciting I believe. I'm taking my bear costume to the dry cleaners, so it will be ready when needed.

Short Wynn in fund; no personal position