Trade Ideas for 05/19/09

The S&P reversed sharply today, closing near its high of 910 (on the dot). Today's action gives the short-term bullish case more credibility, but doesn't resolve the short-term directional ambiguity. A pause or pullback is due—the sharpness of today's move is unsustainable—and how that resolves should say more about what's next. A shallow pullback, perhaps one that unfolds over several days, would support a move to highs above the 930 prior high. However, any violation of the support level in the S&P from yesterday's graphic (875 level) would immediately put the overwhelming advantage to a short-term bearish case. Since the corresponding level in the Russell 2000 has already been breached, this scenario still seems more likely to me.

Under the short-term bearish case, we'd have an uptrend lasting 2 months from 667 to 930. A correction lasting 2-3 weeks (i.e., one-third the length of time) is a rough fit for the corresponding corrective phase. And then another upward phase to complete Primary B. Under the short-term bullish case, Primary B would be over upon completion of the next leg up. So, paradoxically, the short-term bearish scenario is more bullish in the medium term, and vice versa; although both scenarios are bearish in the long term. These two potential scenarios are sketched below.

Big changes in the list of holdings: all short positions were sold for losses, albeit small ones, and GG was sold for a small loss as well. We bought SSO.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Additional Exit Guideline	Chart
DGP	18.68	19.63	+5.1%	19.49	N/A	Chart
SSO	25.06	25.68	+2.5%	23.95	N/A	Chart
HNI	16.84	17.65	+4.8%	16.86	N/A	Chart

YGE has a good setup on the long side. As for shorts, nothing looks great because the move today was so wide, but in case we get a gap down tomorrow, TWM is the one I'd choose.

New Trade Ideas

Ticker	Entry	Exit A	Exit C	Chart
YGE (Yingli Green Energy)	9.11	8.30	N/A	Chart
TWM (Ultrashort Russell 2000)	51.51	46.65	N/A	Chart

Please refer to "How To Trade The Ideas" (right-hand side) to read this table.