Last Friday, I began to feel that the headline risk out of Europe was going to increase, so I took a very small position in the FAZ. The daily chart had bounced off support around 37, but there was really nothing else going on. I want the market/stock to confirm my fundamental or macro view, and since it didn't I exited that small position on Monday for a slight loss of 0.1% to my account. Sometimes, I get in because my head tells me to, but the market had not given me enough information to confirm my view. This is something that I have become more aware of, and I am glad that I realized this had occurred again, so I got out.
With the Italian sovereign debt issues increasing today, the markets got smashed. FAZ has recently put in a higher low, and if it can break above 45.24 then it will make a higher high, which is one definition of an uptrend. Today's upward move also generated a solid green bar. If you were to draw today's bar from yesterday's close instead of today's open, then the bar would be even bigger and could be considered an Elephant bar in Oliver Velez's world. The FAS put in a big red bar today, and the shorter term moving averages are on the verge of rolling over.
The Italian sovereign debt issue is more serious than the Portugal, Ireland, Spain and Greece issues, primarily because Italy is considered by many experts to be 'to big to bail'. Since the charts are starting to confirm my bearish longer term view, tonight I have put on a very small position in the FAZ (1 lot out of a possible 10). As long as the negative news flow out of Europe continues, and the chart responds positively, I will trade the FAZ. If things begin to get too pessimistic and FAZ roars back to recent resistance around $80, then I will consider lightening up on the FAZ, and getting long FAS. The FAS would have to get into the $3-7 range though for me to really get interested in it. I do not believe that the financial system is going to collapse, but I believe the odds are increasingly that the market is going to fear that, and take the financials out to the proverbial woodshed. Ultimately, I want to be a buyer of that deep pessimism.
Disclosure: Long FAZ.
***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security...trade at your own risk...my positions my change at any time without notice***
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