A Look Back and Ahead

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  • on October 28th, 2011

It’s safe to say we’ll finish this week with another higher high/higher low to go with those of the past 2 weeks.  I’m quite comfortable planning for another higher low next week, but how do we use that info?  Since we all eyed the confluence of forces just above $SPY 126, I’ll base my expectations around that as a possible test of importance.  That would allow us to fill Thursday’s gap, which would be discussed as bearish but I find harmless to the 1-3 month bull case.  We are still in a range so a long-term participant has to view that as more of an area gap than a breakaway gap, and therefore it has a good chance of being filled.

Until we manage that test of 126, I’m treating this as a rally with upside to 1350 and downside to 1225…thus not real compelling at $SPX 1285.  If I can see another episode like those ending on October 18 & October 26, I can rework the plan and buy more at that point.  For now, I’ve switched half of the Jan 1325/1350 $SPX to a Jan 1325/Nov 1300 as the allure of grabbing decay after the huge bounce was too great to resist.  I have a tight leash on those short Nov calls; if we break 1300 OR get a narrow range/inside day(contraction leads to expansion imo) I will move them back to January 1350.

The power of this move is incredible but also faces months of price memory just above, encompassing this past January to July.  I see no need to abandon pursuit of a higher target but the job is to manage risk as it evolves; at this point a time out would be most welcome.  I’m hoping for an inside week but if this market has taught us anything it’s to plan for even the craziest of scenarios.

3:30 PM Update: With today being an inside/narrow range day, I made the defensive move of rolling the short Nov 1300 out to 1310 to reduce gamma risk.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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