Tuesday, October 13, 2009

Trading the Trendline -- Ready for a correction?

We are almost halfway through the ill-fated month of October without a major correction.  The trend lines below suggest we are ready for a down cycle.  My covered call positions (1 2 3) are sufficiently in the money that I have decided to hold out for expiration at the end of this week, but I did close out a long position in SPY today as well as close out my VIX bear spread yesterday.   It is tempting to bet on a correction, but that goes against one of the time honored rules of trading -- don't fight the market.

A break-out on the upside is certainly a possibility.  I think there are still a lot of people on the sidelines, earning next to nothing on their cash and watching the market run away from them.  It is about time for them to jump in...

Click to enlarge the graph

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