Monday, April 13, 2009

S&P Still Chuggin Higher, but my Money's on the Short Side; April 13, 2009

Well the market started weak again this morning but couldn't follow through as the day went on and surged higher. The market was quite split and diverged in various indices and indicators which often means signs of a shakey rally in its last stages. However I'm sure it's getting on with me constantly saying a decline is due, but that's what I see. My view is that it's way too late to get bullish with all the bearish divergences and overbought indicators our there. So I choose to go against the larger uptrend, and buy bearish option spreads and wait for a decline. If I wasn't so aggressive I'd just wait for the big pullback and then buy on the way down. But I'm aggressive, so the best play is to short this market using options to where I can risk a small amount of capital and just wait.

One thing to note is the unhealthy internal structure of the market today as it was all over the place. Of most significance is that the NYSE was up 0.63% and yet the Dow was actually down on the day. Plus, momentum indicators continue to show big bearish divergence, and it's building. Also, notice the above 4hr chart of the S&P futures. The market rallied to the upper end of the parallel trend channel I drew last week and then sharply reversed. This signal combined with the unhealthy structure and internals of the market may give us the beginning of the significant decline I've been waiting for-for weeks. A rally through resistance at 870 S&P cash will probably lead to a charge towards the 1000 area. So I will skim back a bit on a strong break and hold of that level.

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