Sunday, August 7, 2011

Tomorrow = volatility x infinity

The time has finally come, our “fearless” leaders in congress have finally done it. Taking weeks to resolve a debt issue, Standard and Poors have decided on Friday night, minutes following AH trading, to downgrade US credit rating from AAA to AA+ watch negative. This is a huge blow for our self-esteem, along with it being the first time in history this has happened. Personally, I did not think S&P has the guts to do this, but it was necessary. Congress could not solve an important issue and were so self-centered on their own campaigns during the debt ceiling fiasco.

Prior to this, we have witnessed the markets sell off quite substantially. The S&P 500 has been down nine out of the last ten days, on fear of European contagion. As far as resistance levels, on Friday we broke 1,200. Looking at a $SPY chart, I can see that this is an exact 50% retracement from 1,050 when QE2 began. I stressed this level on my last post.

The chart above shows the S&P 500 with 1,200 1,150 and 1,050 levels with horizontal lines. The S2 pivot is 1,159, we got within 9 handles of S2 intra-day Friday then bounced on news of a European bond buying program. Granted if that announcement did not take place, we could have easily breached 1,160 eventually to 1,150. The ultimate “get out and go home” level is S3 1,118. This would be a 90 handle selloff from Friday’s close, I don’t anticipate this happening, but with the swings we have been seeing this past week, anything is possible.

Above is another great photo, this shows circuit breakers in the Dow Jones Industrial Average; pretty straightforward. Never have we been here, but it has been close in the past, (2008). If we get a nice HFT arcade machine going tomorrow, anything is possible. 5% limit down in YM futures would be 570 pts keep that # in mind too.

No doubt we are going to see a LOT of volatility tomorrow. Friday we traded almost 9 Billion shares just on the NYSE consolidated. Average volume today, now that Citigroup has 1:10 split is something under 4 Billion. The picture below shows the $VXX ETN, seeing record volume last week and huge breaks to the upside. I am not putting any money to work this week, because I tried last week and failed at a bottom, but calls on the 35.00 are hot hot hot right now, still, levels are more than 7 pts off the March spike. The SMA 100 and 50 day have contracted quite a bit this past week also signaling a golden cross in the short term.

I want to close with a positive mood, know the levels, trade them, and maybe you can be like Jay Z “Double your money and make a stack”

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