Friday was one of the wildest days I have seen in a very long time, it was hard to determine which head fake was the real move even into the last hour traders were wondering if we would roll over. I have been bearish in recent weeks playing puts off the 50 day line in the $SPY, finally Friday I capitulated and bought call options at the end of day and will look to play the long side if the 50 day can hold up as support for the $SPY index, I will also look to play the Russell 2000 index going forward on the long side in my trend following account.
- While $SPY plunged to the 100 day line and wrestled with the 50 day many leading stocks held up very well in bases, some still near all time highs or bouncing off their 50 day lines. The 15 strong charts I see on individual stocks are: $TSLA $GOOG $WWWW $GMCR $GNRC $ILMN $RPXC $CBOE $CI $WLK $V $DNKN $SBGI $PVH $VFC
- Finally $SPY breaks above the 50 day on Friday and holds into the close, while many see this as a light volume holiday week break out I would say this year all the nice up trends have been on lighter volume.
- The small cap Russell 2000 index broke to all time highs Friday, this is always a bullish case for the stock market with small caps leading the way to all time highs.
- The market was able to shrug off all Headline risk with Portugal yields rising and a new Egyptian revolution, the $EGPT ETF exploded above its 50 day line and was even up almost 15% when there was literally blood on the streets. If the market is able to rally on all this bad news what will it do on good news?
- While the market popped then dropped on Friday’s payroll reports it was able to power back and over come all losses from the morning. It is hard to ignore that kind of price action in a reversal candlestick.
- The $SPY reversed off the 100 day and never looked back, then formed a base under the 50 day and broke above short term resistance on Friday. For me it was very uncomfortable going long at the end of day as the wrestling at the 50 day continued into the last 30 minutes. But I could not ignore this rally it could be the start of a nice trend back to all time highs, we will see.
- The odds are that we will see a nice trend off the 50 day after the little price base last week either back to all time highs or back to the 100 day, for now my bet is up but I will remain flexible and play off the 50 day for risk controlled bets to capture the next big trend in the leading stocks and leveraged plays in $SPY using options. One thing we know is that eventually range bound markets resolve in trends.