By: Scott Redler
For the past year, we have been buying dips, buying bullish technical patterns, and shorting the extremely extended moves (remember the strategy of shorting the S&P every time we cleared new highs by about 20-40 handles? That was our only successful shorting strategy). Every time traders shorted a 4-5% pullin, they were toast.
The metric for the validity of this breakdown will be the size of the bounce. If the market cannot reclaim the 1,119-1,121 level, or the extreme line in the sand at 1,128-1,130 area, then the market should get its first 10-20% correction since the March bottom. Over the past two weeks we have watched all the poor technical action add up in leading into the breaking of the 1,128-1,132 area. Hopefully all of our readers out there took note and had cleaned up their long positions–and even SHORTED–in anticipation of the move.
Moving forward:
I think you can only buy VERY oversold levels, as we saw into Friday’s close (after three big down days). Implement the RedDog reversal strategy for nice day and a half long bounces. As far as shorting, you can look for sell set ups at resistance levels and breakdowns of support. For example: if Goldman Sachs (GS) gets back to the $158-162 zone, you look to short on a sell setup. JP Morgan (JPM) at around $42 is a similar level. In tech–Amazon (AMZN) was a great short ever since its double top, and was an even better short as it broke $125-125.50 on Friday.
Now it’s worth trading long, but as the market tries to pick itself up and retest the key levels, look for a sell setup. Baidu (BIDU) was a great short on Friday as it broke $425. Now, if it bounces back to the $422-425 area, see how it reacts and await a trigger to short for a reentry. You can use this type of strategy in any sector, BUT you must watch price action closely with the futures in order to confirm the plan.
Today we have a gap-up open. I took some longs home on the close Friday, figuring that every trader in America was hoping for a down open. I did so with a plan: I would add into the 1,080-1,085 area since that to me is a level to look for an oversold bounce. The overnight bounce in the futures changes my morning plan, but I am not complaining.
I feel like to be a trader now, you need to be on top of way too many things going on in Washington. It frustrates me, because as I read everything coming out of the Hill, it makes me more and more angry with our system. Under the surface, the Supreme Court ruled that corporations can now contribute as much as they want DIRECTLY to politicians. Yeah, that’s a great idea considering what is already so wrong with America–isn’t this already how our officials are elected?
Anyway, I will look to see if $111-111.50 on the SPYs contains this bounce in the short-term. Be patient and wait for a setup in that area.
