Thursday, August 9, 2012

SPX looking stretched

SPX Daily
I zoomed out a bit on this daily chart to include a little more price and volume data. The S&P500 bulls are bumping up into the top area of a high volume zone here around 1410ish. If they get to work in the S&P futures tonight and clear that area by tomorrow, then I'll be watching for a potential move up to the 1420ish level by the close. S&P futures are now trading at about a 3 point discount to SPX, so the equivalent levels I'm watching in futures are 1407 and 1417. 1417ish is also the weekly R2.

The flip side is that we roll over from here. There are plenty of indicators that are starting to look ripe for selling... you can take your pick. The first level of potential support that I'll be watching for on SPX is 1380-1385, and then comes the 1360-1370 high volume zone. If the bulls can't hold that 1360-1370 level, the 50day comes in around 1350. Below that and we potentially open up to a deeper correction into the 1320's and a break of 1300 (sure seems like a lot of folks are anticipating that though).

Overall, I'm thinking that we might need to see one last move up with a volume push on the S&P futures daily chart before we rollover a bit. Anything above 2m contracts will probably provide a decent swing short position setup for me. I'll follow up on that when and if things develop "properly".

China Steel

Below is a chart of world steel production.
This is taken from a recent article from Business Insider on the "Decline of the West"
Here's more for a post market read:
http://tinyurl.com/92qmpgd

Gator's Chart of the Day

Gator's Chart of the Day: BIDU
Baidu, Inc. reported earnings July 23rd after market.  You can see the big gap up and close just below the 50 day simple moving average.  It's been working its way higher since then and is now consolidating just above the 200 day sma.  BIDU sports a forward P/E of nearly 21 (GOOG is only 13) but analysts still like it and have a target price of 168.  (Stats from Finviz)

The Trade
I've been in and out of BIDU this week using the weekly calls.  That approach is strictly for day trading and this strategy has little or nothing to do with that kind of trade.

An entry somewhere in the 131-132 range would require about 4% risk tolerance with a stop just below Monday's candle.  (That low was 125.70.)  While not visible on this chart, there is a gap from 142 to 144.50.  I'm looking for that gap as the target for the trade.  I'll be looking for call options as my vehicle and likely take a September strike as I need more time than August allows.  I would prefer October but they are not yet available.  I plan to buy in thirds.