Thursday, December 16, 2010

Bearish setup possible tomorrow

Today the Dow dropped 19 points but remains well within the boundaries of the ascending RTC that I drew going back to December 8th. More importantly, the 11,400 area which provided resistance for so long is now support, and it held up well today with the low reaching 11,445 (the high of November 5th was 11,452). Add this to the fact that all three futures are up modestly at this point (1:20 AM EST) whereas they were down at the same time last night, and I'm not looking for a breakdown tomorrow.

Also, note that the VIX today hit a high of 18.14 before closing at 17.94. The 18 level which was its support for a long time, is now resistance. Anything that impedes the rise of the VIX is good for stocks.

However, because of the steep slope of the RTC, it would now take only one more day of either sideways action or an outright decline of any amount to form a bearish setup that might signal the end of this trend. And note too that today's volume was greater than yesterday's - a bearish sign.

So with these mixed messages, tthe market has a feel of indecision to me. I'll bet that in this environment, any piece of good news on taxes could drive it quickly higher and any bad news out of Europe could drive it lower. I realize that's not a particularly deep observation, but there are times when the market seems to completely ignore the news. This doesn't feel like one of those times. Right now, I can't really put on either my long or short hat. We'll see.


Today, GE, one of my holdings, fell out of its own daily RTC channel that saw it climb from 15.68 last month to a high of 17.90 two days ago before closing at 17.49 today. Since I really like GE as a company and I'm in a deep profit position in it, instead of selling it I bought some puts (March 2011 strike) today to act as insurance and protect my profit. I don't really play options very much. Buying puts as insurance is about all I ever do with them. Try as I might, I have a hard time figuring out all those exotic strangle, straddle, whatever combinations. And I don't trade what I don't understand.

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