Inside a Trader's Brain (SPY)

1) Short. Aggressively Short. Europe was down across the board 1 percent. We had new specific breaking bad news in Italy. Our markets have climbed very quickly of late. The next support level in SPY is 132-132.20. Or much lower.

For the intraday trader fading below this level on the long side is poor trading. There are some traders with so much trading skill they can get away with fading below this 132.72 SPY. But this is still poor trading.

Look trading is hard. I am sure some faded the move below SPY 132.75 and do not need this writer to beat them down. There are not many instances where I will state one point of view is the only point of view. But long below these levels is stepping in front of the train waiting to get run over. If you are getting long below this level you are wrong!

2) Lighten up and manage your shorts. This is now a nice downmove from the open. And we are at our important support level. I am not flat. Steve in my office after the open was an advocate of flat here. I am slow to cover in a market with this much potential downside today. I am down to 1/3 of my short positions and waiting. I want to short more into a pop.

I exchanged this gchat with one of our traders during this downmove:

10:19 AM Alex: think im going to lock in my morning here. was in good plays, should have had more size so I could still be in them, but dont want to chase

10:20 AM 2 plays short SWC and shor RIG

me: what is the next support in those stocks and the mkt?

10:21 AM Alex: I didnt think SWC could go this far…now it looks like $20

RIG 60.00

10:22 AM SPY 132 is support

definitely still opportunity if I wait for things to develop

me: ok up to you. just think thru things the right way and make a decision that makes sense to you

57 minutes

11:20 AM Alex: RIG went to 60, SWC went to 20, SPY to 132 hah

After the open I spoke with our newest trainees. I emphatically made a point using this exchange above. With the intraday fundamentals today you must give your shorts some room to work. There must be a Reason2Cover. The most likely reason in SWC was 20 or when SPY touch 132. This was not a day to cover too early. Too much risk to do so.

3) Short into the pop. I do not care if we get taken out higher. What is the right thing to do? Short into the upmove and hold for a move back to 132 and perhaps below.

4) I did not add this on the chart. But below 132 SPY and I want to short more for another potentially big downmove. I am not sure we can get this next huge downmove today. I would prefer if we can cleanly hold below the 132 SPY and move away from this price confirming another down-leg.

Mike Bellafiore