Friday, July 03, 2009

SPY update

A few weeks ago on 6/13/2009 I posted A Critical Point for the S&P 500 where I noted that the SPY was at its 70 week (I actually meant 50 week, sorry for the confusion) moving average. Both the 50 and 70 week moving averages are historically good indicators of bull and bear markets. Today I'm posting an update on what has happened since then.

As you can see the SPY literally bounced off of the 50SMA and has moved lower. I noted in the previous post:

For a long term investor, if the 350 day moving average is breached, you have a low risk point of entry with a stop just below the average. If it doesn't breach this average, now is a good time to short the market with a vengeance. That being said, I'm disclosing my position as still currently long because I am trading a shorter term system. But I am cognizant of what is going on here and will likely be switch to leveraged short if the SPY goes below 85.

Since then, my trading system has moved my entry point for a leveraged short trade to about 88 which is 2% from the 89.81 close on Thursday. Now is a good time to be aware of the risk currently in the market and what are some likely outcomes. As an investor/trader, it is incredibly important to have an action plan laid out ahead of time and know the exact dollar and percentage amount of risk you are holding.

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