Just to avoid confusion as having an options call in SSO (Ultra-long S&P-500) and a short equity position (actually it's long, but an inverse ETF) in SPXU (3x leveraged S&P short/bear ETF) seems to be contradictory, a very leveraged long position and a leveraged short.
First let me explain how I view and like to use leverage, if there's a short term signal that looks good, but may not have enough profit potential to take the trade with an equity position, then I look at options, but these are for very short/quick trades and I want to get out of them ASAP.
If the trend (and as I just explained with AAPL, multiple trends can exist at the same time) looks to be a bit longer, but still not a long trend, maybe it's along the lines of a swing trade, then I prefer to use less leverage, but still some so I might pick a 2 or 3x leveraged ETF like SPXU, I don't want to hold this for a very long time, but several weeks or before the first major correction, they work well and I may enter it before the call position (enter a short and then a long) because the positioning may have been better when it was entered and the call may just be for a quick trade.
If there's a primary trend I prefer not to use leverage, the trend itself has enough profit potential and I can avoid pitfalls of leverage which I won't get in to now.
So how does that apply to say the S&P where there's a call position in SSO (short term heavily leveraged long) and a short position in SPXU (3x leveraged short)?
First lets look at the reason why there may be a move to the upside in the market....
The QQQ has a VERY clear resistance area, there are bound to be a ton of Buy to Cover orders there from shorts and buy orders from longs, making a move above that level and triggering those orders can be worth a lot of money to Wall St. and because it's so obvious, it becomes more likely.
In fact when we saw weird action Tuesday 12/4 I eventually figured out it was because the IWM had the exact same issue, very defined resistance where all these orders are, as you can see the IWM resistance area that we have been saying will be hit, was hit, but while that was happening, the Q's built their own.
How to make sense of this and the positions with 3C...
I'm using the SPY as an example , but first lets look at the trend again...
The rally started on the 16th, I fully expect it to move down from these levels even though it may have to make a quick move up to hit those orders.
3C shows us...
Short term positive on the 1 min chart, it seems the market is preparing for at least an intraday move higher.
SPY 3 min, this is a leading positive divergence, this suggests that the market is preparing for more than just an intraday move higher, but still not enough to change the trend down expected.
This 5 min tells me that a call position will likely work very well for a short term trade as this 5 min chart shows migration of a positive divergence so I do expect a move higher, I believe it is related to that QQQ resistance area, but the market tends to move together.
That explains the Call/Long position (short term).
Now for the SPXU bearish position...
Since the rally started on the 16th with a positive divergence we have a deep leading negative divergence, this tells me there's almost no chance that the SPY will not move significantly lower and having at least a partial position in SPXU makes a lot of sense to me, if the SPY moves higher in the very short term and the short term charts go negative, I'll add to the SPXU short position (it's actually long SPXU gives you short exposure to the SPX).
The 15 min chart is an even stronger signal, this is a huge leading negative divergence, I don't ignore these, this is why I have an SPXU position and because these are highest probability, I don't want to trade around my SPXU position and try to get too fancy, if the SPY breaks suddenly, I have exposure to the move and even though we have strong short term long signals, the highest probabilities are always with the longest charts and strongest divergences.
Market update with other averages to come...
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