Despite losing money today and being slapped around, I am encouraged to see a market which seems to have a human pulse. An hour ago, the S&P 500 broke the 20-day moving average again (I bought some SPY puts just as a downside hedge)... then 30 minutes ago popped back up to S&P 1194, enlisting "here we go again" thoughts.
I was beginning to think this was going to be "one of those days," where every move is a disaster, and I am just compounding them by trying to quickly make up what was lost. Not only had I sold my long index positions I was now exposed to the downside with options.
Then, out of the blue, the market falls off the cliff. Anyone who bought that bounce to 1194 thinking of a "V" shaped bounce was hurt. (Click to enlarge)
In theory, a downside reversal like we had today - breaking through the 20-day moving average and sitting at last Monday's lows on the close - should lead to more downside to come. In theory. The downside test, if it continues, would be to the 50-day moving average at 1167.
In the weekly summary I proposed buying some long dated (January 2011) out of the money puts; something in the S&P 1100 range because eventually the market has to go down again and fill those (multiple) gaps. But after being burned in relentless fashion for endless weeks attempting any shorting, it is hard to take the plunge. I have, however, wanted to go long volatility but the darn ETFs to replicate VIX are horrid.
Anyhow, let's see what tomorrow brings (actually the PPT is hard at work, with S&P up 3 already in the 10 minutes after the close). China fell to a 7-month low last night, and Europe has its obvious issues. There is a Fed meeting tomorrow where we will analyze if Ben Bernanke moves one comma in paragraph 5, sentence 3.... and the implications for the world from this action.
Ironically, when I posted the Portugal debt story this morning (one I've posted similar articles to in the past), I assumed that it elicited many yawns. "Here we go again, talking about something that does not matter." But Moody's waking up (dear Moody's - you might want to review USA's "AAA" rating as well - speaking of jokes) seems to have made a little difference. C'mon German taxpayers, do your moral hazard duty and make sure the average Greek public worker can retire at age 53... you don't want to "upset the markets."
As I always like to say, it only matters when it matters. Knowing when the market chooses to care about something is the part that is very difficult to assess.