Battle Plan

Everyone needs a plan, here's a few ideas, but first read the analysis at Trade-Guild.net tonight.

If we see a breakout above $112.80/$113 on the SPY, then the longs I gave you the last two days are quite workable. There is a high chance of a false breakout below $112/$111.75. If that were to happen and then we see a move back above those levels, especially on volume, we have another workable long setup. You can sit in cash right now too, but we do have a strong 10 minute divergence, but it may be destroyed as the 1 and 5 minute divergences from yesterday were, remember I said this market is susceptible to news and news is what caused the breakdown today, however it seems that there are institutions with positions at higher levels and I'd think they'll want to see the market move up to unload them. 10 minute divergences are also stronger then 1-5 minute divergences and the 10 minute positive divergences have been strong today.

If we get a break of the hammer at $111.75 (SPY), you'll want to look at the shorts I listed in May-there are two lists, both to the right of this post and I'll add more once we see what is what-you are not going to miss the train with all the downside we have below.

The triangle that formed at the end of the day will be an upside breakout at $112.80-that is worth adding to longs or establishing partial positions which you add to as the market moves higher, but I never expected more then a few days of upside so these longs are quick trades. No matter what you do, you must follow the risk management rules. There's no excuse (other then a bad gap ) to lose more then 2% of your portfolio on any bad trade. If you are losing more then that, you need to email me and we need to work out a risk management plan.

Ultimately, most of you should be holding core short positions, remember the longs were just for a bounce trade. So in any case, you should be somewhat hedged. If the longs work out , you'll make money and set up great shorts, if they don't you'll be hedged, you'll close them and the shorts will be profitable. Just review all the trade options I laid out and be ready to execute them on a break either way. I can see adding to shorts below $111.50 on the SPY.

Bottom line, with the information we have right now, I still expect upside, intraday there's a lot of false moves so follow your risk management plan, but don't jump out of positions that have no reason to be out of if they haven't hit your stop levels (don't react to emotions). In other words a downside breakout of support is a high probability and a move up after that is also a high probability, you don't want to sell at the low unless your risk management plan dictates that in the position sizing you choose.

To me a gap down means nothing, just as the gap up today meant nothing except (as I pointed out in my posts) it was an opportunity to sell some longs at a profit. The market will do everything to fool you and scare you out of trades, don't fall for it. Volume is always a good indication of how real the move is. I'll try to update in the morning on TG and again in the afternoon. Whatever happens, think risk management and remember, the longs are tactical, the shorts are strategic as I believe ultimately this market is going much lower.

Finally, CASH IS A POSITION, if you are not feeling good about these longs and want to wait for the shorts to hit, then be in some cash.

Email me with any specific questions or and especially if your risk management plan is costing you more then 1-2% of your portfolio on any failed trades. Be sure to look for my updates on TG, and check WOWS too if something serious breaks I'll be updating here.