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Saturday, May 22, 2010

Market Thought... if, then

The reason why computers are being used to trade equities is because a ton of the decisions are 'if/then' functions, no different then how computers decide.

The action on Friday is making the hedgies think twice, and kicking in an 'if/then' scenario.

The 'flash crash' low was breached, and a nice capitulation upward took place. The action made Friday interesting, and the set up is making traders think. 'If' we bounce off this level, 'then' that level maybe a bottom.

What is adding to that second guessing is the fact that banks lead on Friday. (Not to mention that the 'flash crash' low is also near a very very strong SP500 monthly support level.)

So, if we have leadership from the financials, and political leadership continues to emerge to reduce the 'perceived' negativity, then the hegdies will shift their current uncertain view and begin to model the market on company fundamentals. (Which will cause the markets to rise)

My assessment from a vast amount of media reports indicates political leadership is emerging and we are near a bottom of a churning process.

To excel at this game, we must look to the 'correct' functions (or indicators), a few steps a head before the 'if/then' decision takes place and what would be the trigger to change big-boy psychology. This is what I try to do, and that was my thought process with my 'i don't see it' and 'insomnia's a bitch' posts. It ain't easy, and takes a big set of balls, especially when there is so much negativity. But without real negativity, there is no real correction.

With that said, I still have a heavy cash position, but my largest positions currently are financials in C and GS. And with no uncertainty do I say this next statement: when the SP500 approaches its daily 320SMA I will go very very long equities. (Buying a shit load of call options, most likely in GS, AAPL, IBM and others of my favorite names.)

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