Market Update 12/15/09

A long time ago in a galaxy far, far away…

Galactic Starships (GS) would fire huge arsenals of futures contracts to overrun Rebel positions and destroy bases. Rebel areas of support and resistance would be overrun, and obliterated.
These volatile periods brought on by the ultimate GS weapon- the program death star- would shatter the peaceful quiet markets enabled by the consolidating Rebel positions.
That was another time and place. In this galaxy the consolidating Rebels are well hidden from a program death star. The SP-500 has been locked in a tight 30 point for a month and has a general lack of interest from buyers, sellers and program death stars.

However, there are signs that in another galaxy would precede an end to the peace.

1. The top breadth indicator (a calculation of the up volume and down volume on NYSE issues) remains extremely negative divergent.

2. My Mouthwash Breadth Indicator is approaching and extreme level on the upside.

3. $SPX is once again testing the lower trend line on the regression channel. A move thru it could fuel a large down side move out of this consolidation. (If it holds it could fuel a large move to the upside)

I have tried for a few days to find an option straddle I was comfortable with. If we ever adopt the physics of that far away galaxy, an explosive move is coming. A straddle would eliminate the need to be right on the direction. I have yet to find the right combination, and I am now trading for a down move. Because of the low volatility SPY put options are relatively cheap and limit my risk if the explosion is to the up side.

I can’t ignore my Breadth indicators, as in that other galaxy they were the “force” that protected against and profited from sudden appearances of the program death star.

Good Trading
KW