A Failure Of The 50DMA

Yesterday the rising wedge that was shown here got taken apart.

Last night, the futures cratered even further.

Since Tuesday's highs, the futures have tanked nearly 100 points.

This is what a failure of the 50 day moving average looks like. This is why it is such a big deal.

This action also presents another opportunity to show why it is very important, if you must speculate, to use options.

I had an ill-timed short at 1181 last week (cash S&P index) that I held on to. As the market fell into some Fibonacci zones I had my eye on yesterday, I speculated that it may have one final leg to the upside and bought SPY 118 calls late in the day around 1162.

You can say it was some protection against my short, or just blind speculation. It doesn't matter.

What matters this morning is I was dead wrong.

Two very important things come out of this:

1) Those calls were bought against existing short inventory and will be quickly paid for. I can be dead wrong and live to play another day.

2) Now the market has tipped its hand and has eliminated the other short-term bullish scenarios I was trying to allow for (and profit from). It now looks like the odds have swung heavily to a retest of 1101.54, and quite possibly, 1000 could be in the cards over the next several days.

I like to win every trade. But that is simply not possible.

What is possible, with the help of options, is that I can increase my opportunities to win while controlling my losses when I'm wrong.