Where are we headed?

Okay, I have a few links of interest for all of you before I get into the post.

• Where is the SPY headed over the short-term?
• Lessons From Irwin T. Yamamoto
• Independent Trading: Pros & Cons

So, today was quite interesting to say the least. The market rallied before the open only to close near the lows of the day. Sure, it looks bearish and I think over the next few months we are headed lower, but I think over the short-term we should see a decent bounce.

Here are just a few reasons why I think we could see a nice advance over the next 5-10 days.

1. The large gap in all of the major indices (plus almost all sector ETFs) from 6/29 has yet to close
2. All of the major indexes have moved into a short-term oversold extreme (just look at the RSI (2) readings)
3. Read the first link from my aforementioned links. Serge is right on in my opinion.
4. Lastly, the start of the second half brings in retirement funds, etc. Furthermore, the Nasdaq’s 12-day mid-year rally begins in late June and conveniently ends on July 13th. According to the Stock Trader’s Almanac the average gain for the 12-day mid-year tech rally is 3.2% versus the 0.1% for July as a whole. Moreover, the Almanac states to watch for “huge market gyrations” after July 4th “both up and down”.

The Almanac goes on to mention that  ”in the mid-80’s the market began to evolve into a tech driven market and control in summer shifted to the                outlook for the second quarter earnings of technology companies.”As a result, the Nasdaq’s 12 day mid-year rally from the end of June through mid-            July is the strongest.

I currently have several positions (SPY, IWM and QQQQ) with roughly 50% of My Options Portfolio in play. The next few days should be very interesting and could be quite profitable if indeed my high-probability, mean-reversion analysis goes as planned. This is my style of trading. I am a high-probability, mean-reversion trader so I will occasionally take my lumps trying to catch falling knives, but as long as my position-size and stops are in place I have no problem with risk for it is controlled risk. As for losses, they are just a part of trading for a living and as an options trader I fully understand that My Options Portfolio will be more volatile than your standard stock-based portfolio.

I hope all of you have a wonderful night!

Kindest,

Andy