Happy Thanksgiving!
Hi all,
First of all, Happy Thanksgiving! While you are indulging yourself with turkeys and company of friends and relatives, you can take your mind off trading for a few days. Not much has been going on in the market lately. Thus, there is not much to update on the market.
The market is consolidating in a tight range but inching toward the upper trend line. It is bullish that the broad market is correcting by time and not by price. Even though this correction by time is done with light volume, it is inching toward a new higher high day after day (see chart 1). Prices are just not heading down as you can see in the chart, each low is a higher low. It just doesn’t seem like it wants to move any lower.
Chart 1: SPX 5-Day, 30-min chart.
We may see 1 or 2 down days very soon when traders come back from their Thanksgiving break next week because the SPX is trending very close to the upper trend line. Every time the SPX hits the upper trend line, it fell back into the channel (see chart 2). Thus, it is highly likely that a short break to the downside will happen soon and when that happens, there will be a top. The top will become the new resistance. The more important thing to watch out for when the down days happen is whether or not the fall is accompanied by large volume selling into strength and how large is the move down.
Chart 2: SPX daily chart.
As it is, there is no reason to short a bullish market. However, if you have an appetite for risky trades, you can try to exploit the coming downside correction at your own risk.
Some subscribers may have incurred some negative deltas due to our neutral strategies. Our strategies normally have near-zero delta when we initiated the trade. But as the market moves, the positions may start to generate more and more positive or negative deltas. You may want to consider hedging your negative deltas by entering positions that generates positive deltas. A good hedge for the SPY will be the SPX. But please be very careful about what you are doing. You don’t want to turn a profitable position into a loser. The reason why I mention it is so that you can start to explore the possibility of hedging to reduce loss or even to turn a loser into a winner. However, I only encourage traders with more experience to do that. We will normally close out the trade to cut loss when we have to.
Lastly, the performance of our advisory for the month of October was a loser. Our market-neutral strategies can normally be profitable for moderate moves up or down but as mentioned in our previous blog entry, the upward moves recently is way massive. We hope this will be the last loser month we have to endure. We expect to have about 3 to 4 loser months in a year and hopefully we’ll stop seeing losers altogether.
Have a great holiday, you surely deserve it.
