Monday, January 12, 2009

A Trade In SPY

Man, last week was so tough, it was difficult to find a trade that I wanted to highlight.

On Friday, I lost money. However, before I lost money, I was actually up decently. At one point, I was even top dog in the RO.

It was a brief moment.

What got me there was a long trade. I had been watching the $89 level on SPY. It's hard to remember if I came up with this wonderful support level on my own or if it was pointed out to my by the HCPG collective. (As an aside, a bunch of pansies read that newsletter.)

Anyway, not only did this approximate level represent the price on the downtrend line from the late November rally, but, making the support even stronger, theoretically, was the 50dma at $89.07.

So when we moved down to this level in the SPY, I started long positions in SPY and a couple of other names. I'll just highlight the SPY trade, since it was the impetus for the whole trade.

One little caveat... I bought and sold SPY many times trying to jump the gun on this one. And so I was down quite a bit before the support was hit. Looking back, it's hard to know what the heck I was thinking. This market rewards patience.

Things have changed from the gunslinging trade we were enjoying just a few weeks ago... again, adapt or die.

So I picked up all the SPY I wanted, between $89.20 and $89.28. I couple thousand. I only got so aggressive because support was either going to hold and I was going to be okay, or it would break and I would immediately exit. The low of the day at this point was $89.14, so I was realistically risking $250 to $400.

Support held. However, volume didn't exactly flood into the market like I was hoping. Instead, it slackened, so I immediately started to take profits. I sold 1200 of my 2000 share position between $89.43 and $89.57. With some profits locked in, I could now afford to sit back and watch a bit knowing that even if it came all the way back to the lows, the worst case scenario was a breakeven trade.

$89.75 became a sticky area that SPY couldn't fight its way above, so I exited 400 more shares at $89.67. So I had 400 left.

Now, I decided to move this last 400 stop to my entry instead of waiting for a new low. I'm never sure what to do in this situation... keep the stop at my original level, or move it up. Because I was down on the day and unenthused by the volume from a significant support level, I opted to move it up. As a result, at 10:30, I was stopped from the trade at $89.25.

Shortly after, the stock made a new low, but held $89. I thought it could be making a double bottom, so reentered the long and bought 1000 shares at $89.31. I put my stop at $88.99 and told myself to just walk away.

In fact, I didn't walk away. I never do...

I exited 300 SPY when it got up to the sticky $89.75 area just after 11am and then watched the stock slide backwards all the way back to my entry. This action blew. 20 minutes later I had another opportunity to exit and I sold another 200 at $89.90. I was happy the $89.75 level broke but looking back, I should have taken a friends advice and used that level, $89.70-$89.75 to stop the last 500 of my position...

Instead, I ended selling 100 more at .50 and the rest at $89.33.

Going forward, without a significant uptick in volume and volatility, I'll be following more trades like this, where I can put on some size by what I deem to be an "important level."


Anonymous said...

Hi DinosaurTrader,

Thanks for the insightful post on your trade.

I was checking out a chart of the SPX and the SPY. Why is it that the SPY has a long wick on the bottom of its candle but the SPX has no wick at all?? I thought the SPY is suppose to track the SPX???


Dinosaur Trader said...


I think there might have been a misstick reported to the Esiggy chart. I'm pretty sure SPY didn't break $89.


Scott said...

Support and resistance are useless in the todays market. Afterall, look how many "support" levels the market has blown through since the highs. Maybe a better name would be "hoping and wishing levels". To a day trader momentum is king and the thing to key into. Momentum will blast through any level because that is where the power move of the moment is.