S&P 500: All Systems Go On the Follow-Through

: 62%
VIX Status: 14.3%
General (Short-term) Trading Call: Hold with a bullish bias
Reference Charts (click for view of last 6 months from Stockcharts.com):

Commentary
So much for wiping out the gains from the S&P 500′s big breakout on March 13th. In How To Assess Best Buy’s Post-Earnings Potential .”

Ended the torture of holding VXX shares
Nothing has been more destructive to my performance than VXX shares. I finally gave myself MAJOR relief by unloading them on Friday. I simply could not trade VXX puts fast enough to keep up with VXX’s losses. I replaced the shares with April calls that I am holding as “just in case” we wake up one morning to something truly crazy. I suspect there are still way too many bears that are doubling and tripling down on VXX waiting for just that magical (Black swan) moment. I married the calls to even more puts, the better risk/reward bet for now. Those puts soared in value at Monday’s open as VXX quickly fell another 6% to fresh all-time lows. I happily sold them. VXX ended the day down over 9%. This thing got so ugly, I decided near the close to apply some of my profits from the March weekly puts into buying out-of-the-money April puts. VXX’s chart exclaims 1000 words and death by 2000 cuts.

Back into the euro-plays with Siemens (SI)
The euro-plays get me the most excited right now. They are more in my contrarian comfort zone whereas the bullish plays on the S&P 500 are all about trend-following. With Europe rallying overnight, I checked in on Siemens (SI) to see how far it had popped. To my surprise, Siemens was flat. For comparison, EWG, the Germany ETF, closed the day up a cool 2.2%. SI is still directly below critical resistance so I am taking a larger risk than usual, but I feel it is worth the shot with EWG looking ready to launch to fresh 8-month highs. I consider Siemens a classic “catch-up” stock as it will be a natural play for anyone wanting to participate in a European recovery. I started with calls. If Siemens manages to drop below $90 or so, I will begin accumulating shares to hold for the longer haul.

What now?
With the S&P 500 at fresh multi-year highs, it seems crazy to maintain such a bullish bias, yet, the data told me to do it. While I suspect tomorrow’s open will make me wish I still had all my SSO calls and original collection of VXX puts, I will stay focused on the current strategy of buying whatever dips the market presents and then selling into the next rally. I continue to expect a lot of churn with a slight upward bias that produces numerous bullish trading opportunities, including shifts in and out of overbought territory. Last week’s dip was a PERFECT example of what I talked about earlier as part of my expectations: the continued frustration of bears as selling lacks the critical follow-through to break down the S&P 500. This week’s open printed an exclamation point as the S&P 500 recaptured ALL of last week’s losses in a flash. That impressive move occurred on decent (meaning average) trading volume. This follow-through and fresh breakout must thus be respected and given its due…

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When T2108 next hits overbought territory, I hope to re-examine the data supporting the bullish case. Until then, stay nimble and keep an open mind.

Charts below are the latest snapshots of T2108 (and the S&P 500) Refresh browser if the charts are the same as the last T2108 update.

Be careful out there!