In the last 2 ½ months the S&P has advanced 12% lifting prices to 5 year highs above 1500 in March futures. As one can see it has been a steady climb for all of 2013 as prices have been able to dance above the 9 day MA; identified by the red line in the chart above. I have been anticipating a correction now for several weeks. It is way too early to call an interim top but if we are able to close below this pivot point it could be the start. As one can see prices have reached overbought levels. On a correction lower I think it is vey feasible to see a trade to the 38.2% Fibonacci level. This would put prices just above the 50 day MA; identified by the dark blue line. Along the way I have advised clients to be short and hedge their position with put options. I have taken a profit on the put options and now look to recoup value on the futures leg on the way down.
I will be the first to admit that I made 2 mistakes on this trade…letting a winner become a loser and holding on for too long. On a trade back near 1425-1440 in March futures it would amount to a small loss for clients that weathered the storm. Two takeaways…don’t allow winners to become losers and regardless of your opinion cut losses when a trade moves array.
Turmoil overseas, negative earnings, weaker economic numbers or even just traders booking profits could serve as a catalyst to get indices moving lower short term. We do not need to see a bear market but rather a routine correction for traders to dodge a bullet on this trade.
To discuss in more detail this chart or any other you can reach me at: mbradbard@rcmam.com or 954-929-9997
Risk Disclaimer: The opinions contained herein are for general information only and are not intended to provide specific investment advice or recommendations and are not tailored to any specific’s investor’s needs or investment goals. You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results.