Bounce Coming – Trade It, Then Fade It!

The cable banshees are howling “all Rita all the time” but it looks as though all the bad news is baked into the cake and a bounce should be on the way. I don’t know whether it will materialize today because we are up against a weekend and risk managers will be on the prowl, but if not today, Monday is likely an up day, and a rally should carry a bit. The VIX index, after closing 10% over its 10-day MA for the last couple of days is sliding near its lows as I write.

However, this will be a bounce for the very nimble, and should you choose to play it, either from the long market side, or the short volatility side (or both). You should have an itchy trigger finger because the real story affecting the markets this week was “Hurricane Alan” and his reluctance to slow up on the raising of interest rates. This left a lot of tops in some of the sectors that had been market leaders as well as the SPX.





The “M” tops should put the brakes on any rally that results from Rita “under performing” the cable ghouls’ expectations. So be quick to exit longs on the bounce, and if volatility crashes on the way up, reel in some longer-term puts. If it stays elevated, look to initiate some bear spreads against the overhead resistance.

What if there isn’t a bounce? Then this market is in BIG trouble.

Joe Corona

Joe Corona is a 23-year veteran trader who makes his living trading options and other derivatives. Mr. Corona has been a floor trader on numerous exchanges including the CBOE, CBOT, and CME. Joe most recently spent 4 years as Head Trader for Market Wizard Tony Saliba at Salibaco, a proprietary trading firm. He has also been an options instructor for the International Trading Institute where he has trained hundreds of options and derivative traders for major institutional trading desks worldwide. Joe is the Director of the Asia Pacific region for CDLS Consulting, LLC which specializes in trading U.S., European, and Asian options and derivatives.