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Completion of Rare Overextended Irrational Market (incomple)

 
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PostPosted: Wed Mar 21, 2007 5:33 am    Post subject: Completion of Rare Overextended Irrational Market (incomple) Reply with quote

The SPX 18-month daily chart below shows a classic Oct to May rally and a Jul to Feb "irrational" rally where short-term technical indicators, which were reliable for many years, failed. After the Oct to May rally, most expected SPX to fall in a lower trading range, e.g. between 1,180 and 1,280 through Oct, while few expected a rally. Given indicators failed and volatility compressed, the rally was most difficult to trade. Personally, my portfolio held up well until SPX rose above 1,350 in Oct and then fell apart.

Also, I may add, I almost had a new account in Dec and Feb (from same person). If he invested in Dec (before end of the year), I most likely would have bought only SPY Feb puts and he would have been wiped-out. However, if he invested in Feb (before President's Day holiday), I'd have turned $100,000 into $400,000 in Feb, i.e. reached my target when the Dow fell over 500 points intraday with SPY Apr 142 puts (and those puts exceeded my target rising from 0.70 to 3.90 in one day). Consequently, I'd have made a $200,000 management fee, based on the contract.

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