morning update

It seems we'll get a small gap up this a.m. which leads me to believe this is a real move and not a false move as the false gaps tend to be bigger and for a reason, the market makers are using them to fade the gap to make money, a small gap doesn't show that intention.

A break above the $108.75 area on the SPY today would be a fairly definitive short term reversal. We are looking at using UPRO to hedge our shorts and ultimately make a little money on a counter trend move. Seeing as the market typical overshoots normal targets as part of it's shakeout maneuvers, I fell it is possible for a bounce to carry as high as the $112.25 area on the SPY which would be good for anyone wishing to go short the market. I do not think it will cross above $113.20 to make a new high. The target may be even lower and of course there's the possibility it just fails altogether. The financial reform legislation can not be a good thing for the market, except for giving individual investors more confidence, but they account for so little of the trading right now, I doubt it'll make a big difference at least on the upside, especially when compared to the downside of which will be marked by a lot of firms doing a lot of things to get compliant and to find new ways to skirt the bill.

Considering nearly everyone on Obama's team has spent some time on Wall Street, I imagine this is more bark than bite, but there will be consequences-mostly unintended as there always are when the government tries to do anything. It's all a moot point, just as long as we are on the right side of the trade.

If the market begins an a bounce, you can monitor it to know roughly when to get out by using a 50 bar simple moving average on the SPY on a 15 min chart, it seems to work pretty well. Usually I use the close as an indication of when to close out positions but intraday volatility may mean that intraday stops or scaling out on intraday breaches on the 50-m.a. may be more wise. Looking at past performance, even in substantial trends there will be the occasional break of the 50, but only for a little while and the trend continues. So another thing you may wish to through into the mix is the direction of the 50 bar average-as long as it is moving up, any break of it may be temporary. Typically it takes a little time to distribute positions and the 50 will usually go lateral to down at a trend change while momentary violations of the 50 may be false if they occur while the average is still trending up. This is why I advocate a possible "Scaling out" exit, but if you choose that, scale out on the first substantial sign of a break, don't wait for it to drop several percent as the strategy would make no sense at that point.