Friday, May 25, 2007

Offense or Defense?

"A man may die, nations may rise and fall, but an idea lives on. "

John F. Kennedy

This the standard chart of the S&P 500 Index. It shows the advance/decline moving average in the top section and volume in the lower pane. In price area of the chart the colored lines mark the levels based off the opening range strategy covered in a recent post(review of strategy link here). The green and red lines show the targets below the current market if selling continues. Most of the selling was probably done yesterday, the Friday before a three day holiday weekend is usually a light trading day. Any strength in the market today could be a good opportunity to look at buying June puts in either the SPY or OEX.

This is a chart of the OEX S&P 100 large cap stocks. The area shown in the red box shows "stems" at the top of these candle sticks. This is an area the market traded but failed to finish the day there and sold off. Four of them in a row is not a bullish sign for prices in this area, lack of buyers to say the least. Volume shows that the last couple days selling had the upper hand. This is an area to watch short term, could be a top for now. A put strategy using the levels shown in this chart might lead one to buy the June 685 puts and sell the June 675 puts. This is not an aggressive strategy, but could offer some protection if selling continues before the third Friday in June. Time will tell. This strategy can be applied to the SPY and the QQQQ, depending which market fits the portfolio being hedged. If anyone has any specific questions about how to do this or what might be a more aggressive strategy, feel free to click the "email me" button and ask what might fit your specific situation best. Shorting selling is a great way to make money in a shorter period of time than most long trades, but it is something that takes time to learn. Using puts is a great way to get a taste of what goes on.


Scanning for winning ideas is something that is made easier by using one of the many software programs available. This can either be done on a large basket of stocks or a select group filtered for some fundamental criteria; cash flow, price-to-sales, debt. Taking yesterday's down performance, any stocks that show up that had large volume surge and a positive day might be worth putting on a radar screen for future consideration. The scan going to be used for this is below.

Close > Close Yesterday
Close Yesterday < Close 2days Ago
Volume > 20day Average Volume * 2
Average Volume > 100,000 shares

Here a few that showed up.

The next topic will deal with a more detailed scan that looks at things on a longer time horizon. It will also cover some more shorting ideas and what to look for in short trade set ups.

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