Two S3s and a Jump - 8/20/2008

The set-up going into today was two S3s and then a jump. I was using 8/4 as a grounie set-up. There should have been an EARLY V-SPIKE in the morning. This should have set-up a low.

I was short overnight from 1273. Covered my shorts at 1265. This was a high probability S3 & S2 overnight squeeze set-up. I covered my put hedge yesterday at 1268.75, and put out the hedge again overnight knowing that we would get that dumb squeeze.

Then into the morning dump to 1261, I shorted 10 more 1200 AUG PUTS at 10.75. This looked great when futures squeezed up to 1276.50 afterwards.

However, looking at the 8/4 grounie, I noticed that the market gets weaker at the close. I lost my nerve when I saw the headline about Russia and Condi signing the Warsaw Missile Treaty. I covered my 10 puts at 9.25. Still a profit, but I missed the rally at the close.

BOTTOM-LINE: I did not fully think out the scenario that we could close weaker. I should've put out a line of futures shorts if we broke 1260, or maybe I was simply oversized. Anyway, talking to Jim panicked me. Have a GAME PLAN, stick to the GAME PLAN.

2ND DROP DAY - 8/19/08

I am tracking a grounie from 8/1. Basically, we get an angle backwards reset, and then a push forward.

Compare today's chart with 8/1.

We should get a rally overnight up to 1271-1274 then a sell-off in the morning.

CHOP, CHOP, CHOP - 8/13/08

The waves continue to be very choppy in the S&P. This current period is quite similar to last August in 2007. We had big thrusts up on the back of positive news on the financials, and there were calls that the BOTTOM was in. However, no thrust has any lasting power. So, we just play pinball back and forth for 20-30 points each thrust.

Jim Cramer is leading this charge of calling the BOTTOM.

Today's market fits this pattern of thrusting up for two days, and then retreating for two days. Daily ranges continue to be around 30 points in the S&P. This is a very good market to just trade the chop. The fear, of course, is that we get a break-out.

This sentiment pattern is still fitting the BULLISH mode.

Watch This Grounie - 8/1/08

HOW'S THAT FOR A MATCH? - 8/7/08

Grounies are getting easier to spot. Basically, the patterns are starting to cycle quickly. We are in a S3-S4 bullish choppy market. Two day trends is all we get.

JOY, JOY, JOY - 8/6/08

These grounies are tracking pretty well. People are trying to play the break-out game when this is the wrong tune right now.

The BULLISHNESS is building. Waiting for a crescendo moment.

Dollar BULLISHNESS seems to be fueling this one.

HAVE A HAPPY FED DAY! - 8/5/08

This is why it is so hard to make money in this market. Yesterday, we were on DEATH GROUND, today, we are just partying like its 1999.

So this is the new pattern in this regime. S3 back angle => spring forward action.

STRATEGY: GET LONG AT CLOSE, HAVE STOPS BELOW THE LOWS.

My signals are still BULLISH. I am taking profits on my 1200 Aug puts which are now trading with a 1.00 handle.

DEATH GROUND - 8/4/08

Sun Tzu's The Art of War: "In difficult ground, press on; On hemmed-in ground, use subterfuge; In death ground, fight."

Yesterday's trading is a groundhog for 7/28. Basically, on light volume, the market simply gave up the ghost and looked absolutely horrible. I call it DEATH GROUND.

I was caught out long on the same trade on 7/28. The right solution was to have a stop below the market rather than covering at the close (which was the absolutely worst time to do so).

This will be a new pattern to watch.