Today, from 12pm to 1:45pm the SPYs trended down very steadily from 87 to 83.5.  There was a readable seller for the entire downmove.  When the SPYs attempted a reversal it failed around 84.6.  This led to a downmove to the low of the day at 83.  I was able to make a nice chop in the steady downtrend.  But I gave it all back and a lot more in the final 30 minutes when the market rallied.  I made a bunch of mistakes that led to my large loss but the biggest one was not respecting current market conditions.

The market we are currently in can turn on a dime.  If a large seller materializes the market will get crushed.  If a large buyer steps in the upmoves will be much greater than you would normally expect.  So it is essential to trade with less size than normal, or if you are trading with size to be tighter with your stops.

From 3pm to 3:30pm I managed to stay afloat while maintaining a large short position.  Each powerful upmove in the market was led by vicious downmoves.  This kept me in the game but also gave me a false sense of security.  I felt as long as my PnL wasn’t that bad and I maintained my core short position that I would make a large chop when we retested the low for the day.  But alas that was not to be.

At 3:47pm the SPYs made a powerful upmove through 85.50.  I attempted to cover my entire short position for the first time.  It was the third consecutive higher high for the SPYs and seemed as if they would close at the high for the day.  I was unable to get any stock on this powerful move.  My inability to cover my short position when I tried to sweep out was further evidence that there was enormous buying pressure in the market.

At 4:00pm the SPYs were at 86.60.  After the market closed they traded as high as 87.20.  In the aftermarket I observed a lot of buying at 86.70.  Eventually, the futures traded down a bit and the SPYs traded down to 86.20.  I am currently short 1,000 shares.  If the futures are down in the premarket tomorrow I will look to cover at 85.50.  If the futures are up then I will be covering above 87.20

Important levels to watch on the downside for tomorrow are 85.50, 84.60, and 83.70.  If the SPYs trade below 83.70 quickly I would expect a move to the 83 support level.  On the upside 87.70 will offer some resistance.