Target reached

Yesterday, markets were on fire with optimism… at the expense of the U.S. dollar and bonds. Or maybe it was the exodus from “safe” assets like the U.S. dollar and bonds that fueled the market optimism? No matter what the cause or rationale, markets rallied right into and through the key resistance zone I mentioned in my previous post (http://bitheadturneddaytrader.wordpress.com/2010/10/12/uptrend-remains-intact/).

And, as I promised I’d do, I took profits as we approached 1,181. I sold half of my long position at 1,180.25. When prices spiked slightly above 1,184 and began to back-off, I sold my remaining half long position at 1,183.00. I’m now sitting in cash.

So now I wait to see where markets want to go from here. With the U.S. dollar so weak, it wouldn’t be surprising to see the markets continue to march higher. But we’ll need Financial stocks to participate in order for that to happen, and even yesterday’s rally wasn’t enough to inspire XLF to break-out above $15 (a key level many traders are watching). In fact, even as the S&P500 closed +0.7% yesterday, XLF closed ~ even after flirting with $15. Not very inspiring.

Today, the U.S. dollar has continued its’ decline (quite steeply actually) but the S&P500 sits ~ even with yesterday’s close. Financial stocks are taking a beating, presently down 1.2%. Technology stocks are slightly positive. There are other indicators like the VIX, the put/call ratio, and various divergences in technical indicators that say we’re primed for a reversal here. I need a bearish alignment of the S&P500’s 3 day and 10 day exponential moving averages to trigger a short trade.

Performance of my current trade (now sold): +3.47%

Performance since July 27, 2010 (79 days):

S&P500: +5.77%

Me: -5.78% (5 winning trades, 7 losing trades)

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