50 Day Moving Average Test

The market seems to have completed the 5th wave (truncating the micro count I had) so now we should see the start of a correction. Key levels were breached today and the market finally closed under the Trend Average, a first in over a month. Additionally, I see I bearish engulfing pattern potential so a top is likely. In an ideal world we will see a bounce back to the 1507-1510 area and then resume a bigger bearish wave. If the market doesn't bounce before 1491, then we might see a big down day before any bounce. I had been expecting a correction since the 1480-1490's so this is not a big surprise. What matters now is where the correction will find its bottom and I am thinking the market intends to visit the 50 day moving average currently trading at 1447 and going up a few points per day. This would fit well into a 50% retracement of the wave from 1398 and gap support from Jan 1st. So we'll see how well the market can handle the coming selling pressure. And obviously, we need confirmation of trend change before officially calling it a top at 1514 but I'd give it a 75% chance the short term top is in.

I will be loading back on my hedges on the rebound. Technically speaking, I did the right thing when I sold my hedge at 1501 as I was expecting 1513, but VXX was actually higher at 1513 than when I sold. So in the future I might just hedged directly with 2X or 3X S&P500 ETFs as I need better correlation between market price and trading vehicle. It has happened to me before so this will probably be the last time I get into volatility. Also, HSI seems to have confirmed a top so that just adds likelihood of a top in the US.

Main S&P 500 Trends

Short Term Trend = Neutral leaning bearish

Medium Term Trend = Bullish

Long Term Trend = Bullish

Long Term Portfolio

• 80% Long in Red Chips traded in HSI (Mainland China stocks traded in Hong Kong) since September 2012. Only position trading 30-40% of portfolio for cost improvement. - Sold 10% on 12/27/12, Sold 10% 01/22/2013

Short Term Margin Trading Strategy 

• Bought 1000 VXX @ $25.78 as of 01/16/2013, Bought 1000 VXX @23.68 on 01/22/2013 - Sold @22.68 to position trade on 01/25/2013
• Bought 1000 VXX @ $25.92 as of 01/15/2013 - Closed @25.96 on 01/15/2013 . = +0.04
• Bought 30 AAPL @ $509.50 as of 12/14/2012 on margin - Closed @514.50 on 12/17/2012. = +5.00
• Bought 1000 XIV @18.62 as of 12/13/2012 on margin - Closed @18.70 on 12/14/2012. = +0.08
• Bought 1000 XIV @18.80 as of 12/05/2012 on margin - Closed @18.88 on 12/07/2012. = +0.08
• Bought 1000 XIV @18.41 as of 12/04/2012 on margin - Closed @18.63 on 12/05/2012. = +0.22
• Bought 500 VXX @29.23 on 12/03/2012 - Closed @30.12 on 12/03/2012. = +0.89
• Bought 500 VXX @30.77 on 11/23/2012 - Closed @29..68 on 11/27/2012. = -1.09
• Bought 500 VXX @31.54 on 11/20/2012 - Stopped out @31.11 on 11/21/2012. = -0.43
• Closed position 500 @ 18.26 on 11/20/2012. Sold 500 @ 17.79, raised stop to break even on the other 500 as of 11/19/2012. Bought 1000 XIV @15.98 as of 11/15/2012 on margin - position trade cost improvement 4 cents, so net cost $15.94 as of 11/16/2012 - Profit = $2.05 
• Bought 1000 XIV @16.88 as of 11/14/2012 on margin - Stopped out @ 16.66 on 11/14/2012. = -0.22
• Bought 1000 XIV @15.67 as of 11/08/2012 on margin - sold 1000 XIV @ 16.25 on 11/12/2012 = +0.58
• Margin positions in Gold initiated 11/06/2012.

Net Profit since 11/08/2012 on open and closed short term positions = $2,625*

* Margin position is usually $15-20k

* Margin position in gold is $4k