NEW YORK (TheStreet) -- It's amazing how much in the market can change in a week.
Seven days ago, the market was selling off in an orderly fashion through August lows in the S&P 500 of 1101. It certainly didn't feel like we were near a bottom at the time, but in a headline-driven bear market environment like this one, all it takes is one strong statement from an official or bold policy action to completely flip the script. You always have to be on your toes when shorting; it is not a long-term investment strategy.
Last Tuesday, on Oct. 4, we saw a classic technical reversal day, as smart money was apparently convinced the necessary action had been taken to support the troubled European banking system. Volume and price action, in the form of a bullish outside reversal candlestick, supported the notion that we had put in a short-term bottom. Commitment to the bounce over the next two days provided further evidence that we were likely headed for a positive fourth quarter.
While I was in the short camp as we approached August 1101 lows, I did not believe world leaders would allow the market to make the complete downside measured move before stepping in. I formulated a plan to cover my short position as we approached the 1070 area in the S&P, and did indeed cover the majority of my short in that area.Tuesday's bullish engulfing candlestick convinced me to cover the rest of my short position. You should have a plan in place for macro trades, but when the complexion changes, you must always let the price action dictate your trading activity. Tuesday might have been the most important Technical Day of the fourth quarter, and was certainly a "day to take notice". After Tuesday's reversal, I did not immediately flip long because I didn't yet trust this market, but I did start to look for cash flow trading opportunities intraday. We started to identify natural spots for the S&P to bounce to ahead of the important jobs number, and the logical spot was the 21-day moving average at $116.50. That calculated bounce occurred as scripted, followed by a gap up and pull-back on Friday.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV