While not necessarily part of our core strategy week in and week out, trading off technical conditions on the general market rather than buy / hold / sell / short of individual stocks have provided some excellent icing on the cake during this big run in the market. We will have completed another quick (and dirty) in and out move which exposed us to very little risk, and gave us a quite sizzling profit. In fact it happened a lot faster than I anticipated...
My goal here is to outline my general thinking, and be transparent as possible on strategy - so one can see this is not just random dart throwing. Mistakes, flaws, successes - all are there to see. As a caveat once this goes from virtual to real, I won't be able to describe things in advance as that is against SEC regulations, but for now you are seeing most of the cooking.
Outline of the strategy that got us here:
(1) Last Friday we said the gap at S&P 500 level 1075 looked like it might fill relatively soon (
Oct 16, 2009: Current S&P 500 "Gap" Might Fill Sooner Rather than Later)
If you are newer to the site a gap is simply a "hole" in the chart; where a stock (or index) opens at a price far higher (or lower) then the previous days close. We call this a gap - generally on indexes these fill rather quickly... 2-8 weeks perhaps. On individual stocks it is much more variable - could be in 48 hours, could be in 2 years, could be "never".
The chart looked like this last Friday
(2) Frankly on Monday I thought "so much for that" as the S&P 500 made a race to 1100 - kind of wavered on what to do since I am underexposed for a new leg up... decided to wait to see how the market acted around 1100. If the market broke north of that level we'd have to find a way to join in despite the before mentioned gap.
(3) Monday, Tuesday, and Wednesday through 3 PM we made repeated attempts at S&P 1100 but really did not break through that level... a "big round number" that means little other than with human psychology. Since it was a 50/50 proposition if we would break through I basically sat on my hands. Someone who was more active (and something I sometimes do, but did not do this time) would have an opportunity to place a short position on to hedge their portfolio just under S&P 1100 in case this proved to be resistance.
