Selling 60% of Direxion Small Cap Bull 3X

Jul.13.10 | About: Direxion Daily (TNA)

The market has been respecting the "simple moving averages" more than the "exponential moving averages" for much of the past few months. However, today (so far) an exponential moving average (50-day) has caused the rally to stall around S&P 1094. S&P 1100 is where the 50 day simple stands so I'd still assume that is where the real test comes. In theory the 50- and 200-day moving averages together in one spot should be a wall of resistance, especially coming off five days of rallying but as we know, resistance has not been the same limiting force the past 18 months with so many premarket rallies utilized as a way to make the market go where it "needs to" when the volume is the lightest and "urgent buyers" can do their work in easy fashion. (Click to enlarge)

That said, my game plan (all laid out on the website ahead of time) was to get long (sell all shorts, get back into index and equities) on that puke a week ago Thursday when S&P 1040 finally broke down in grand fashion. I wanted to be aggressive to the long side until at least 1040 (the area we broke down from) and judging how we acted at that level (it was made mince meat out of as resistance in 24 hours) stay very long until S&P 1070 which has been the pivot point for a few months now. This market compresses time and that whole move took just days rather than a week, or three. Being more aggressive I used equities, SPY calls, and levered long ETFs.

If S&P 1070 was cleared (it was) I wanted to get back into long index positions but in a less aggressive fashion (hence no SPY calls, just levered ETFs), so positions that were sold off up to 1070 were bought back when the "action" looked good (S&P 1073ish was holding and no real retest of 1070) were bought back. The stretch goal was the 50/200 day moving averages at that point i.e. S&P "1100ish." And here we are.

Hence I am going to sell 60% of TNA for a relatively modest 5% or so gain, which is not bad for a position put on Friday. I went pretty heavy with 2 allocations (4% and 3%) for a sum of 7%. Again between 1070 and 1100 I am not being so aggressive with index exposurem but adding some gains is never a bad thing. With Intel reporting tonight, which is effectively an earnings report for the entire market we either are going to (a) shoot over these key resistance levels if Intel makes people happy, or (b) get rejected. No one knows, but as the bipolar market reacts, we'll adjust. I'll decide what to do with the other 40% of TNA going into the close.

Frankly the move off the 1010 bottom (the Doug Kass "low of the year") has been almost textbook and the latest hallmark of this market is a move in one direction without a pause. We just came off effectively a nine-day selloff losing 120 straight S&P points (from S&P 1130 to S&P 1010 intraday). That has been followed by the six-day "straight up" shot we now are enjoying... 1010 to 1090, 80 points. And the nine-day sell-off was preceded by a 8.2% move in about eight sessions.

In summary these moves are "student body left" trading... bipolar, risk on, risk off; wax on, wax off. Nothing unexpected if you have been reading the past few years. But it is even more extreme now that it ever has been.

Disclosure: Long Direxion Small Cap Bull 3x in fund; no personal position

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