Don't bring a knife to a gun battle. This week is going to be wild with options expiration and the potential for major write-off news from Citigroup and other financials.So what to do? Cash actually is sounding better and better. Even many stocks that may rebound from here have not established good bases from which to begin a solid uptrend. On the other hand, I think that shorting the market with these oversold conditions is just as risky.
The S&P Daily Chart is telling me that it will move up from here closer to its upward downtrend line before heading lower again. The oscillators and Bullish % Indexes are also showing a move back up. My "heading lower again" comment is only partially based on TA. The bottom put in last week lacked the "fear-based capitulation" that I like to see when bottoms are established, and suggests to me that this could be only an intermediate bottom. In addition, if the market is truly pricing in a recession and discounting forward earnings, a multiple contraction process typically takes longer to happen and usually means that we have more to go down (like another 6-8%).
Right now, I am busy thinking about what to do with my AAPL calls. They regained much of what they lost on Friday, but implied volatility is has been going lower all day causing premium loss. With CitiGroup and PPI to be reported tomorrow, I am openly questioning my strategy of holding AAPL calls into what could be a disastrous tape in the morning. I have 90 minutes to come up with a strategy.
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