By Gareth Soloway on June 21st, 2010 12:16pm Eastern Time
The markets gapped higher today on the back of a report from China that the Yuan will be allowed to slowly float higher against the U.S. Dollar. Asian and European markets surged on this news and the futures going into the open were at their overnight highs. The SPDR S&P 500 ETF (NYSE:SPY) gapped up and hit $113.20 in the opening minutes of trading. At that point, I signaled I was shorting the markets by utilizing the ProShares UltraShort S&P500 (NYSE:SDS). I put out my buy alert to the members of the Research Center on the Hot Charts and Alerts at $31.40. The low was nailed within $0.02.
Why did I look to short this gap higher? There are a few reasons. Let me discuss. First, the markets are up from $104.50 on the SPY in the last 10 trading days. This tells me that short term, the market is extended and there is less risk of the markets going substantially higher than lower. Therefore, positioning oneself on the short side is a decent short term risk reward play. Next, many thought Friday the markets were topping out because of options expiration coming to a conclusion. This gap up today, took out a lot of the amateur, retail shorts from Friday, removing the weak hands. The third issue is the Yuan, the Chinese currency and the expected revaluation against the Dollar. While they may let their currency float slightly more, it is only going to be a tiny amount. In the scheme of things it will do very little. Also, it fixes none of the current problems in Europe or the overall global economy. Lastly, if you take a look at key stocks like Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX), they both gapped higher today into their 50 moving averages on the daily chart. The methodology dictates that the first hit of the 50 moving average will be a significant wall and a good shorting opportunity.
For these reason, the short at the master level of $113.00 on the SPY was an obvious choice. So far my members and I are solidly in the money, enjoying the pull back in the markets off the highs. I am neither a bull nor a bear, just a swing trader looking to make money on both sides of the market. To get more guidance, education and calls like the SDS, join the Research Center.
Gareth Soloway
Chief Market Strategist
www.InTheMoneyStocks.com
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