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July 22, 2012 / redman59

Day Didn’t Work Out But Took A Short Trade Instead

Today did not work out the way I wanted. Last night I named some stocks that I liked in a post naming AAPL, ADI, AMZN, CMG, EAT, & V. Waking up I saw the SPX trading near +13pts and I just laughed and said “well there goes that plan”. The only stock that saw weakness was EAT. Seeing weakness in this name in a strong tape I decided to just stand aside and wait until the end of day to see how it performed, in which it formed a nice hammer after 3 strong up days. The other stocks were acting well and I missed the morning dips in AAPL, AMZN, & V. I will still be focusing on the hourly chart in these names to look for some type of entry.

With my focus stocks running I stood aside and instead towards the end of day I took a short position in SPY via puts. I still maintain my bullish outlook but also believe that a dip is warranted and look to make some coin off this dip while adding some long positions. That’s the plan anyway. One indicator that I like to pay attention to for overbought/oversold markets is the McClellan Oscillator. I like to look at the +200/-200 levels for extremes and having these be stalling or retracement levels. Below is a chart of the SPX for the last year with highlighted points in where the McClellan Oscillator reached the +200 level.

So with the evidence in the above chart and the nice rally we have seen I decided to try to capitalize on a retracement while maintaining my bullish stance and looking to get in some long positions. I decided to keep it simple by adding some SPY July puts to my account that was all cash. The position remains small compromising 5% of my overall account as tomorrow we have Bernanke and the FOMC minutes and I have no desire to allocate a larger short bias position.

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