Trade Ideas for 06/01/09

The day, week, and month ended on a cliffhanger Friday, at the peak of a blow-off top. The S&P had been trading in a 9-point range up until the last 10 minutes, when the range expanded to 16 points. The range expansion was even more dramatic in the S&P futures: a range of 10 ballooned into 25. If the market had been open for one more minute, the S&P surely would have hit its 200-day simple moving average, as the futures market did. Below is the 1-minute futures chart for Friday.

Here I thought Thursday's action was wacky! Blow-off tops are dislocation events that mark turning points of some degree. In this case, this blow-off top still kept the S&P within the very fixed range that it had traded for the entire month of May, so any subsequent turn may be modest in terms of degree, i.e., reversing the trend of the past week versus the trend of the past 3 months.

The rangebound nature of May has been frustrating for my system, which hits its stride during trends and treads water during congestion periods. The general market has gone back and forth all month, and while we participated in the gold breakout, I missed the one in oil. I mentioned earlier this week that an upside break of the May range might not sustain a trend, but the reverse is also true; with the 200-day moving average as resistance above and the 50-day as support below, the market might just bounce off (or at least around) whichever one it hits first. Until this is resolved, look to play a bit smaller, and maybe take partial profits when those averages are hit.

As for our holdings, the dollar collapsed overnight, and when the market opened we had to exit UUP at a greater loss than budgeted. SMN was stopped out early on, and in the closing minutes we bought UYG. Buying near the peak of a blow-off top is not the ideal circumstance in which to make a purchase, but even if you did buy it, give it a chance since the short- and medium-term trend is up.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Additional Exit Guideline	Chart
DGP	18.68	22.05	+18.0%	21.29	N/A	Chart
SSO	25.06	26.40	+5.3%	25.29	N/A	Chart
ASIA	20.68	20.94	+1.3%	18.79	N/A	Chart
TWM	50.67	45.00	-11.2%	44.74	Do not set the stop until at least 1 minute of regular trading has passed	Chart
UYG	4.11	4.11	0%	3.89	N/A	Chart

While the charts look promising for the first three ideas, I'd be cautious at Monday's open just to make sure that Friday's climactic ending had worked its way through the system. So either reduce risk in the first 45 minutes, or wait until that time has passed. The fourth idea is a short to play the reversal off the climactic top. Play this one small since it's counter trend.

New Trade Ideas

Ticker	Entry	Exit A	Exit C	Chart
RATE (Bankrate)	30.77	28.79	N/A	Chart
JACK (Jack in the Box)	27.01	25.59	N/A	Chart
CPSL (China Precision Steel)	2.26	2.11	1.99	Chart
SRS (Ultrashort Real Estate)	21.13	19.49	N/A	Chart

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