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Trades For The Day - 10/5/2009

|Includes:JWN, MU, MXWL, SPDR S&P 500 Trust ETF (SPY)

While I am still a longer-term bull given the intermediate trend is still up, short-term sentiment has clearly turned negative. My indicator for short-term sentiment is the the 32-day moving average at 1,036 on the S&P 500, which was already breached last week. The intermediate trend support on the other hand is marked by the 130-day moving average, which is currently at about 952. For me to change my longer-term bullish perspective, this intermediate support has to break. For now I would acknowledge the reversal in short-term sentiment (bullish to bearish), but expect any down moves to be choppy due to huge amounts of money that have missed this rally and are looking to get in at lower levels. For now, based on Fibonacci Retracement, the near-term supports are more or less at about 1,000 to 1,010. My model portfolio is currently exposed to the short-side via SDS and EEM short. My long position is on the US dollar via UUP at-the-money calls. I will keep my short positions so long as bonds (NYSEARCA:TLT) continue to have momentum, which means institutional money is still not in a hurry to buy on the dips.

I would also want to add to my short exposure via a short on the consumer sector. Given that some low-end retailers are benefiting from consumer trading down to cheaper goods (ROST, TGT, KSS, COST), I'm wary of shorting a consumer discretionary ETF. Right now, I'm looking at shorting high-end retailer JWN. I would however want to wait for a rally closer to $30 given that we already have three down days on the stock. I'll let you guys know when I've executed the trade. We also have retail sales numbers coming out on Thursday, so I might do this through out-of-money put options. As always, be careful shorting this market, it's tough to fight the Fed.
Meanwhile, the lone reasonable long candidate from our fundamental focus list is MXWL. This can be a trade based on its strong ADX readings, and a four-day pullback seems to be enough of a correction for a high momentum stock. On the other hand, MU is okay but not a perfect trade with some degree of risk attached to it... for those looking to experiment a bit given the general market has sold off a bit. A 5% gain should be good enough here.

Stocks: SPY, MXWL, JWN, MU