SP500 Hedge - FAZ and SDS - Timing is Everything

The leveraged short ETFs FAZ and SDS are a tools to manage profit give-back for a net long position in the SP500 or an equity portfolio with a high correlation to the index. These ETFs are timing tools good for a 1-week window event horizon. This week has all the makings of an opportunity to incorporate these tools into your trading plan.

The SP500 has been on a roll and will maintain this posture above the 973.25 Inflection Pivot targeting the 1014.50-1008.50 resistance band. Expectations are for a reaction from this area presenting a buying opportunity in the FAZ and SDS contracts. Have a defined risk plan on what you are willing to pay for this "insurance". If the Sep'09 SP500 futures starts to hold a trade above 1017 its likely the current Bull trend move has the potential to extend up to the 1050 to 1078 zone before it exhausts. This will be another area of opportunity to execute this strategy.

What type of volatility is going to play out this week remains to be seen, however positioning into the employment release on Friday should provide some play . The VIX above 2400 does have the potential for a pop so use this as a guide.

A break under the 973.25 Inflection Pivot will have the SP500 Index vulnerable to a corrective turn targeting the 939.50-937 support band on any set-back. 962 is the confirmation point for any break in momentum. This sell off does have the potential to extend down to 901-896 without altering the underlying positive sentiment. If the Bull run is going to keep pace either of these support areas will prove a base for the next advance and act like a pivot to work any SDS or FAZ position. Only under 892.50 is there a real threat of a sentiment shift in the Index

JS

This post supports JS Services Strategy Based Trading approach. For more information please contact me at info@jsservices.com. You can also visit http://www.jsservices.com/.The Inflection Pivot levels are available as a chart overlay on the following platforms; Ninja trader, Strategy Runner and eSignal. Sign up for a Complimentary Trial.