Playing These Gaps

$200 price level on SPY looks to be taken out at the open today as well as Monday’s lows, which puts it back into free fall mode between current price and the September lows. 

Very well that we could see a bounce at some point today, which puts adding shorts, following a more than 30 point gap down, a difficult proposition, though not impossible. If we do add shorts, we have to be careful at the open in particular because sharp reversals can happen there and at the close, where short covering and dip buying can rapidly accelerate. 

Otherwise, a solid base formed over the course of a couple of hours followed by a breakout of that base intraday would be ideal for a long play.

The scenario that is unfolding today is why I didn’t stay long yesterday with our UPRO position. There was little profits, and no improvements technically. 

The best chances for us to get long would be a breakout of a larger forming base. Timing with acceptable risk levels become much more difficult, though not impossible with sudden and sharp rises off the lows, because they are just as easily trampled on by the bears if it takes the notion to do so. 

For me it was not worth positioning ourselves short this market yesterday, simply because 1) $200 was holding up on SPY 2) Yesterday’s minor bounce, though pitiful, has similarly created, in the past, short-term or even momentary bottoms that lead to a quick boost in price, most noticeably on 9/29, 12/14, and 12/21. So respect to the potential of shorting yesterday’s minor bounce and waking up to a +20 pop in the futures this morning, was probably just as possible as the -30 sell-off that we are currently seeing in the AM. So there was no edge for us in shorting the market yesterday prior to the close. 

Finally, I wouldn’t be surprised at all to see the bulls, at some point get interested in this market. New lows breadth isn’t entirely convincing, and the T2108 is also showing that as well. However, I am not going to front-run a move, and when we see a move like what we are seeing in the AM, it is entirely possible that that we gap down ad sit at the opening lows for the rest of the day or for a large majority of the day before we see another eventual move up or down. \

I look forward to trading with you all today.