Lower on Monday?

The selling in the final minutes of Friday’s session was so relentless that I assumed it was machine driven; programs set up to press harder as the market went lower. There weren’t many people left around by that time on Friday, fewer of whom were looking to trade aggressively, but computers don’t generally go anywhere for the weekend, and they can keep dumping right until 4:15 EDT. They certainly appeared to be doing so. Those sorts of selling programs will normally employ trailing stops, so the potential for a bounce is there. The question, of course, is will we get one?

The SPX is, on both the hourly and daily charts, in a downtend, as Todd defines it.  The hourly chart, as I read it, shows potential initial resistance around 1160, and then around 1167 or so; the downside target would be the previous low around 1114. The stochastics, which I don’t show on this chart, are exceptionally oversold (again, on the hourly), but there doesn’t appear to be anything resembling a reversal pattern evident in the vertical bars.

As far as news goes, it appears that Greece continues to be a mess, with protesters making it difficult for the European authorities (finance ministers, European Central Bank, International Monetary Fund) to go over the country’s books in preparation for handing over the next tranche of cash needed to keep the ball in the air for a bit longer. In addition, a large Belgian bank that also has substantial operations in France is reportedly having an increasingly difficult time locating funding, raising the possibility that a rescue will be needed. Not a pretty picture; on the plus side, portfolio rebalancing for the beginning of the new quarter, and an influx of money to managers from pension plan sponsors, would normally be expected to give stocks a lift for a day or two.

At present, the ES futures are down a bit, but not dramatically. I had an order filled toward the close on Friday to buy some small SPY 114 calls, basically looking for a quick rebound as new money came into the market on Monday, which should in turn generate short covering on the part of those who were selling late Friday. Of course, if something new, significant, and nasty emerges from Europe, that might trump the seasonal flow of funds, and I may just have to take my lumps and console myself that the trade was a small one. I’m also short some MSFT Nov 25 puts, basically as a way to generate some income from a generally quiet stock that is currently supported by a 3.2% dividend. Given the yield, and the company’s sizable cash flow, I won’t mind getting put if it comes to that.  Those are my only non-day trading positions at present, and I don’t anticipate holding the SPY calls beyond Wednesday, win, lose, or draw.

Just some more or less random thoughts; I normally spend Sunday evening reviewing charts, reviewing my notes from the past week, and thinking about scenarios for the week ahead. I’m always more comfortable trading if I feel that I’ve anticipated what could go wrong with a position. Ray Dalio of Bridgewater, for whose accomplishments I have enormous respect, is fond of saying that he spends much of his time thinking about the reasons why his views might be incorrect. That makes a lot of sense to me, and I try to do the same.

We’ll see how it plays tomorrow; best of luck.