Thursday, December 9, 2010

Trade update & quick recap

I went long on the ESZ0 at 1220 yesterday. I have a trailing stop on this at 1228 and am going to ride this for as long as I can (It's at 1233.50 right now). This trade is made because as explained in my previous post, the stats all point to higher prices next week and I do expect some sort of Xmas rally. What's concerning though is that the last session showed a large amount of divergence. Cumulative ticks finished at -50,000 which is quite bearish and A/D lines were -600 on the NYSE and flat on the Nasdaq. Breadth was the only thing that was positive but even that was quite weak on the NYSE especially. What this tells me is that the rally is narrowing greatly. The only plausible explanation is that all the money right now is flowing into the heavily weighted large cap names which is why the A/D lines can finish negative but the major indexes still finished positive last night with the exception of the RUT (small cap index) which only confirms my hunch. This would also explain the cumulative tick behavior of late. I would be surprised if we had a major sell off so close to Christmas and with the Fed's POMO operation in full swing but you never know......

The OEX BWB trade has made all the money that it can ($0.60 credit), whilst GOOG has rebounded nicely to 590. The original BWB is now trading for around a credit of ($0.40) to take off as the options expire next week. I may think of doing an adjustment soon. Perhaps something like a "Reverse Harvey" (buying back the cheap short put spread) to lock in the profit and reduce risk.

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