Market Update 12/27/09

The SP-500 certainly looks like its trying to break out of its 1+ month consolidation. It seams destined to at least hit the FIB 1.23 extension of the most recent ABC pattern.

However, volume is still anemic and my tried and true Mouthwash Breadth indicator is at its highest extreme reading ever. It has never reached these relative levels with out at least a 1.5% pull back. Previous extreme readings often preceded much more significant pull backs. Cognizant that the market is in an unrelenting up trend I am using the following scale in strategy to build a short position on the SP-500. (Using a combination of SPY, SPY Futures, and SPY Puts)

I currently have 20% of a full position Short. I will scale into a larger position at the SPX levels posted in the table below. My scales percentages are 20%, 30% and 50% of a full position. I also posted an alternative scale % strategy for any one interested in building a short position.

A Pull back >= of 1 ATR(currently 10.64) on a closing basis will bring my stop down to 3.34 SPX points above what ever the resulting pivot high is. At a pull back of 1.4 ATR’s I will close half the position, trail the stop and see if a more significant pull back develops.

This is a relatively low risk way to be exposed to counter trend trade. If it sounds confusing I will post updated trailing stops as they develop. As always plan the trade, and trade the plan.


% Of Full Position
MY %   Alternate%        SPX Level to Scale In          SPX Level Stop
20%            15%                   In at 1119

 30%           30%                    1128.45


50%           55%                    1136.45                              1145.83

Good Trading.

KW