Monday, October 26, 2009

The Big One This Week?

Since my last posting, the market pushed further upwards. I have been playing intraday strategies, shorting at the intraday rally and closing my position when market shows signs of reversal - thus making small profits here and there. My mindset till the end of the month is that I am not willing to long the market when I feel that the market is overbought and can drop at anytime.

This week is critical. It's the last week of October. Normally, if any drastic things were to happen, it tends to happen in October. Currently, I think that the market is just looking for an excuse to retrace downwards.

The EUR/USD currency pair makes a new high 1-year high today. GBP/USD pair has started its divergence from the EUR/USD pair. It seems that it is starting its way down in Aug while EUR/USD is still creeping up. Normally, EUR/USD and GBP/USD pair move up and down in tandem. And as the EUR/USD and GBP/USD pair goes up, the U.S. stock market goes up, i.e. the value of US$ goes down. Is the GBP/USD then leading the pack?

So what's next? If there is any major retracement in October, it tends to happen unexpectedly. The big problem that has been happening is that "short squeeze" had occurred 3 times since August this year. "Short-squeeze" happens when those with short positions may be forced to liquidate and cover their position by purchasing the stock. If enough short sellers buy back the stock, the price is pushed even higher.

Will another short squeeze happen this week or two or will the market finally make a breakdown and move south for the next 6 months or so? We shall see.

In the meantime, I have bought 108 Puts and sold Bear Call Credit spreads (108/113) on SPY with a tight stop loss. The initial target is 104. Then the target will be moved to 102 with a timeframe of three weeks if the 104 level is breached.

Cheers !

PersianCat (Millionaire-in-progress)

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