Friday

Strategic Trading

Post a Comment October 30, 2009 – 9:30 am |   | Permalink |  Print This Post |

1. Assume a test of 1100. So do not fire your last bullet below that level. Assuming a nice textbook lower low trend downwards would be asking for trouble. We will hold back on our naked shorts or at least stay underleveraged until S&P 1080-1100, so that we have the psychological upperhand of having what we describe as a “desire for higher”. Most technical traders are now shorting at 1061 (pivot) with “tight stops” - the line in the sand where its all over for the bears being at 1075. So, there is a risk of a sudden surge higher if the Big Boys are able to push it up to 1070s. So we will let our fellow bear ellioticians be the front line. We will come in at 1080 and above, and ensure that 1100-1150 remains a comfort zone. Note we already have our core shorts in place, so either way we are happy.

2. Tops take longer to form, our explanation is as follows:

• First is known process of distribution: ie the big boys unloading all their holdings to the dumb money. This will therefore take time, since unloading too large a chunk of their holdings would tank the market. So they need to drip feed the dumb without raising any suspicion. Insider Score is currently showing an extreme level of insider selling.
• Second is the “Institutional Shorting Process”. The Big Boys at Goldman etc cannot do without their bonuses. They have made gazillions in this rally, and will want to just as much when markets pullback. Pullbacks are inevitable - markets do not move in one direction. So, once distribution is done, they need to start shorting. If they have 10 billion (hypothetical) to short, they cannot do it all within one hit. That would send the markets too low. So they start anchoring their shorts. Every X billion of shorts triggering a 5% decline as we just did in the last few days. Then they need to let the media ramp up the markets again. Hopefully markets regain the previous top, then they unleash another X billion of shorts. This process repeats itself until they are fully invested in their shorts. THEN they pull the plug and down we go. Check out our last post here on the 1937 crash. In 1937 it retested the high 4-5 times over 35 days. So far, we have been around the 10000 zone for 15 days. We are NOT putting all our chips on a repeat of history, but our strategy is always to assume the worst or to expect the least expected.
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  1937 Top

3. Summary: our trading will be as follows:

• Assume markets will rally sometime within the day. That is we will not short until market is UP again today. If it does good, if it gaps down and stay down then we sit back. The futures is currently negative. We prefer the futures to be up alot before we short.
  
• Order to short at Dow 10050 $2/point. ( ie 100 point rally intraday)
  
• Next order to short the Dow will be at 10100 $2/point (ie 150 point rally intraday)
• Order to short the Dax at 5700 $5/point.