This has been a very profitable week. As I’ve been saying, when the market breaks through the supports of the trading range it’s been in since October 22, it could possibly retest its August lows, giving it a lot of room to fall further to get there. In my last post, I warned it could happen Monday, which it did. This, my friends, caps off one of the most profitable weeks I’ve had, after going long volatility last Tuesday, primarily via short puts on UVXY.
To summarize, I took 25% of my UVXY position off the table to lock in profits. This included my long vertical call spread with a delta 1 option. Otherwise, I remain bearish, and the market could drop further into the beginning of next week. I hope to close the majority of my UVXY position by next Tuesday.
I have other positions open. They are traditional premium collectors I opened about a month ago with Jan expiration. They are doing very well. My GTC limit order on my short vertical call spread on PNRA 314,93 0,00 0,00% filled today, taking 50% max profit on that one.
Where Is The Market At Today?
After breaking through all the supports I had marked on my Nasdaq 100 futures chart, it ended the day with a bounce. I suspect many thought this was the typical reversal it does when it hits the bottom of the range. But, this didn’t hit the range, IT BROKE BELOW IT! So, no, this was not a reversal.
Last Wednesday, longs got pounced. Believe it or not, some tried to go long again on Thursday, and they were run over by a bus. So, when Monday came long, longs were wiser and stood on sidelines. This permitted day trading bears to short the daylights out of the market with no resistance. Well, only one problem with this scenarios. Day traders close at the end of the day. And, instead of having a mix of bulls and bears closing like what you’d see on a normal day, this was all short covering. So, the market soared in the last 30 minutes of trading.
Keep in mind, though, that this was just after breaking major support, and after coming down from a lower high last Tuesday. Even though it ended the day back above the supports, those supports, like shattered glass, were now very weak. Traders also knew that the end of day bounce was not a reversal, but a short covering. Indeed, with the unknown of what was to happen in China Monday night, with the Shanghai market closed prematurely on a breaker after losing 7% the previous trading day, no smart bull was going to open a position late Monday just to leave it open overnight. That would be CRAZY! So, there were virtually no bulls buying on Monday.
Tuesday night… China opens and tanks. But, the government comes in and props it back up. Unlike the west, the China government props up markets just like it props up the Yuan. So, honestly, no one believed the return to unchanged signaled any true calm in China markets.
Today is what we’d call a balancing day. No real direction. A bit down. A bit up. Profit taking on over inflated profit rich Nasdaq (NDX 7.465,00 -242,00 -3,14%), which, down 0.30%, was the only major index down today. The S&P 500 closed up 0.20%.
Ordinarily, this bottom after the steep drop would be bullish. In an individual stock, a long would say it was establishing a base from which to take off from. But, the bigger picture is that this time the risk is greater to the downside. This is probably the calm before the next storm. Thus, I remain bearish, and will watch closely to see what tomorrow will bring. Because I’ve left the majority of my long volatility position open, I’m betting on a move to the downside.
With the Nasdaq continuing to lead the other indices, currently down, but previously up as well, I will refer to my trustee old Nasdaq 100 futures chart to provide the big picture. Note the last candle crossing the yellow support. It is now 9pm. That last candle is what has happened since 5pm, because that begins the new 24-hour day for the futures.
I do not currently plan to open any positions this week. This week, for me, is about continuing to profit from the position I primarily created last Tuesday when the market hit that upper yellow line.
If the market clearly begins a quick descent, I might open up a quick delta 1 put position on QQQ, basically shorting the Nasdaq.