Monday Game Plan and Free Trade Report

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August 24, 2009

Market Notes:

In the law there is a term called “de novo”, which means to consider a matter anew. It’s commonly used when an appeals court reviews a lower court decision. The appeals court can review the case with a fresh pair of eyes.

I like to think of my weekend review of the markets as a “de novo” review. I throw out my previous analysis and biases, and start from scratch. Let’s do that with the market.

On the short term chart, SPY has broke out over recent highs on decent volume. This looks to be a good breakout-pullback setup. While I entered on breakout Friday, I’d like to add more on a dip.

My previous bearish take has been invalidated, as the dip turned out to be a pullback rather than start of a deeper pullback. This is surprising, as last Monday and Tuesday were very bearish moves on strong volume. If we were stubborn here, we’d hold onto the past and say to ourselves, “the market has to go down”. We cant play that game.

However, note that if the recent highs are pierced to the down side (especially on a close), that would invalidate the breakout and the “failed breakout” setup would emerge.

Now let’s look at the longer term 1 year chart. We see a really nice looking bottom pattern that’s take a year to form. We are now near a major resistance level, the gap down zone in the $105-110 range. This will be a good area to take some short positions.

Game Plan:

Buy the dips. Look to get short on a rally into the $105-110 zone.

Trade Tracker:

I entered SPY on the breakout. As I noted on Thursday, we were in a trading range and a break in either direction would clue is in on how to position ourselves. A good strategy when waiting for a level to break is to place a buy entry at that level. I had buy entires placed at the bottom of the range for a short trade and the top of the range for a long trade.

I entered 500 shares of SSO at $31.80 , and 200 shares of SPY at $102.

I was stopped out of my SDS position. I am still short LMT, AMZN, POT and VPRT. Note that while SPY is breaking out to recent highs, my short positions are not. They still could get taken up with the market, but this does tell me that these were good short positions.

Focus List:

The easy trade right now is to just focus on the indexes. You can gain volatility by trading the leveraged ETFs.

SSO, DDM

The only non-index trade I am looking to make tomorrow is LUV. It looks like it may be done pulling back after a strong uptrend. The moving averages are about to cross and the trade is easy to manage with a stop placed at the pivot low.

Shorts: Focus list stocks BCSI, AAP and SNDA

Disclaimer: All information and opinions expressed in this report are to be used for entertainment purposes only. The author of this report is not an investment adviser and does not give buy, sell or hold recommendations. Trading stocks is a risky undertaking, and due diligence is required before making a trade. Consult an investment professional before making a trade. The information in this report is not verified and may be incorrect. The author of this report may or may not hold a position in stocks mentioned in this report.

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