The next long term trade

[nitro]

I have an idea for a trade.

The DOW is beginning to show that it has been dragged up to these levels by the likes of the SP500 and the NAZ100. It is beginning to look to me like overhead resistance is really beginning to form.

However, we do not want to trade what we think, but what we see, and what we see is the SP500 and the SOX taking out new resistance with little or no real pullbacks. Further, moves like these tend to go further than one expects them to.

So the question becomes, how do we set our selves up for a nice run down in the DOW? Take a look at the following chart at the bottom of this post. Since PG is (the) one of the heaviest weighted components of the DOW, and PG has been weaker than the DOW on the way up since March, it becomes a short candidate on the way down. Further, notice the massive overhead resistance on PG.

So here is the trade that takes a defensive posture but still allows us to position ourselves for a move down:

Buy the DIA or DIA futures (YM) and sell the PG Single Stock Future. The ratio is the key and that depends on your level of aggresiveness.

The only thing that worries me is that PG is the place that "people" hide their money when times are bad, which means PG may outperform DIAs on the way down -

What do you think?

nitro

 

[candletrader]

Quote from nitro:



Buy the DIA or DIA futures (YM) and sell the PG Single Stock Future. The ratio is the key and that depends on your level of aggresiveness.

The only thing that worries me is that PG is the place that "people" hide their money when times are bad, which means PG may outperform DIAs on the way down -

What do you think?

nitro

What I think is that if I take a trade, I fully back directionally it without a mitigating hedge... but that's just me i.e. I am of the unhedged, aggressive ilk...

 

[OldTrader]

Quote from nitro:

I have an idea for a trade.


The only thing that worries me is that PG is the place that "people" hide their money when times are bad, which means PG may outperform DIAs on the way down -

What do you think?

nitro

I can almost guarantee you that the only reason PG and others of it's type are weak right now is that money has become more aggressive. This is as you point out more of a defensive type of stock that institutions "park" money in when they get worried. I don't like the trade....course you know what it means if enough agree.

OldTrader

 

[Lobster]

Quote from nitro:


What do you think?

nitro

Looking at the charts, I can only agree with you.

However (and I don't know how valid every single argument in the following chain is): A couple of weeks ago North America experienced quite a little blackout. We can expect a wave of human births a little more than 8 months from now. PG makes a lot of things that humans buy when they have new offspring. (Same for JNJ, NWL, BMY, KMB). I don't think the general investing public has had these thoughts yet.

 

[jrkob]

something I don't understand: your initial strategy is "how do we set our selves up for a nice run down in the DOW".

Then your last sentence talks about buying a Future contract on the Dow.

Am I missing something here ?

 

[Avalanche]

Quote from Lobster:



Looking at the charts, I can only agree with you.

However (and I don't know how valid every single argument in the following chain is): A couple of weeks ago North America experienced quite a little blackout. We can expect a wave of human births a little more than 8 months from now. PG makes a lot of things that humans buy when they have new offspring. (Same for JNJ, NWL, BMY, KMB). I don't think the general investing public has had these thoughts yet.

I doubt that will happen.

http://www.snopes.com/pregnant/blackout.htm


however if the dollar comes in that would help PG and JNJ and others and that gap might actually close rather than widen.

Personally I would tend to agree with the poster that wrote that it is mainly lagging the dow because a lot of money has played the more agressive names lately. (i.e. the higher beta ones like INTC).

Here is a chart of the Dollar Index. Took a dive the other day.

http://futures.tradingcharts.com/chart/US/93

 

[Jeffo]

Quote from nitro:

However, we do not want to trade what we think, but what we see, and what we see is the SP500 and the SOX taking out new resistance with little or no real pullbacks. Further, moves like these tend to go further than one expects them to.

So the question becomes, how do we set our selves up for a nice run down in the DOW?

It looks like you're trying to trade what you think and not what you see. There may be resistance there but how do you know there will be a "run down"? I don't see that at all in the chart yet.

 

[waggie945]

The rotation into the chip sector has left a lot of "value" and "defensive" names in the dust, such as PG and some of the "value" names in the defense stocks as well.

It will be VERY interesting to see what happens to these names during the next correction, and whether or not we will see ROTATION back into them for defensive purposes.

I do like Nitro's "thought-process" though.
It shows that he's definitely in the game, and I thank him for sharing his "idea" with us!

 

[nitro]

So you would just short PG here?

nitro

Quote from candletrader:



What I think is that if I take a trade, I fully back directionally it without a mitigating hedge... but that's just me i.e. I am of the unhedged, aggressive ilk...

 

[nitro]

Yes,

That one little caveat really bothers me too.

nitro

Quote from OldTrader:



...This is as you point out more of a defensive type of stock that institutions "park" money in when they get worried. I don't like the trade....

OldTrader