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August 13, 2009

Resistance Becomes Support

Quite the battle was fought over SPX 1010 during today's session. A higher open saw immediate rejection, but instead of falling apart, bulls fought back and assailed the pivot for two hours beginning around 11:00ET. A seemingly decisive break higher in the opening minutes of the 1:00 hour was firmly rejected and the bears escorted the index quickly down 8 handles. Once again grasping a chance to change the tone of the market, the bears once again fumbled. The SPX closed at its high of the day, conquering the 1010 pivot.

s&p 500 chart

Bulls are no doubt emboldened by the price action, but paltry volume betrays a weak breakout. I suppose if one wanted an excuse to continue holding shorts, the weak volume could be cited. However, my money says it's just too dangerous. There is a price vacuum between here and SPX 1128. If we were to see a quick reversal back below SPX 1010 with a spike in volume, I'd be ready to start shooting bulls again, but in the meantime, I'm saving my ammo for easier targets. Besides, my primary intent on the short side was to protect my huge silver position from a surprise rally in the buck. Given today's action in the metal, the hedge seems less pertinent.

silver chart

The loss I took on the equity short side cost me about 40c against my silver position... much cheaper than puts. Given the setups in precious metals charts, the breakout in the SPX chart, and a dollar chart that still has a wave 5 motive move to complete to the downside, it seems to be an ideal time to lift hedges and just let the PM bull do its work.


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