October 22nd, 2008

SSO and SDS For Now

For those of you trying to catch the next wave in a big way out of this very short-term trading range (between 900 and 980 on the S&P since October 8), here’s a chart of the SSO and SDS relative to the S&P 500. Obviously, they mirror each other with one, the SDS, moving up as the S&P goes down and the other (SSO) going down:

If the market does collapse further and the S&P breaks 900, it looks like a careening straight to 800 – there’s just nothing going back to 2002 to hold it back. Should that happen, the SSO could drop to 24 (currently at 29.94) and the SDS could jump to 120 (currently at 97.90). On the other hand, if you see the support holding and the market successfully breaks up to at least the 1050 area then I’d want to be holding the SSO for a move to around 40.

Right now, I think that the market is actually in the process of trying to form an intermediate bottom. If successful at least in the near term, some of the idle cash parked on the sidelines will actually start looking to pick up some of the attractive valuations now available. I’m still not ready to to do myself but am focusing on the SSO until the MTI signals a clear turn away from the current risky Bearish market psychology.

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