Buy the Dip then Short the Peak: ProShares Ultra S&P500 (ETF) (NYSEARCA: SSO)

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I am looking at this market objectively, and the probabilities of a material reversal higher after the declines this week is even more likely after the overnight session.

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Remember, market indices trade 24 hours a day, in fact most individual investors now have the ability to trade ETFs like SPDR S&P 500 ETF Trust (NYSEARCA: SPY), PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ: QQQ), SPDR Dow Jones Industrial Average ETF (NYSEARCA: DIA), and iShares Russell 2000 Index (ETF) (NYSEARCA: IWM) at all hours of the day.

However, my observation here is focused on the institutional investor operations overnight.

Certainly there was a massive decline, the DOW was -1200 at the worst point I saw, but it also recovered by 600 points.  That’s the key I think.  There was a substantial recovery in price, and if the market makes bounces back from the intraday declines, which is exactly what happened yesterday and it is normal for markets to bunce back after sharp initial intra day declines, this time could have follow through.

Bounce backs from sharp early intraday declines are normal, we saw one yesterday, and this could easily happened today too, but this time, if it does, traders are going to be looking at a 1200 point bounce back in the DOW.  They did not have this yesterday.  They already have a 600 point recovery, that already means something, and some investors are probably already thinking differently.

A bounce back of 600 points was already realized when I was typing these words, and there’s no guarantee of a bounce back like yesterday of course, but the probability is high.

If the Market does experience a bounce back this time and the DOW does recover 1200 points from its overnight low, institutional investors are going to think ‘buy the dip’ and short sellers are going to become apprehensive.  This is also a sign to investors that the market may have fallen enough.

However, even though the Market recovered 600, it was still -600 or so when I was typing, so it’s certainly not a rosy open, but the mindset might not be what the opening numbers seem prepared to display.  This pattern very much supports the notions set forth in this past weekend’s comp work too.

I would not be surprised to see futures improve even more before the open, and I would not be surprised to see the Market increase solidly from there too.

Unless this changes, Buy the Dip!

Initial intraday targets for ProShares Ultra S&P500 (ETF) (NYSEARCA: SSO) are slightly over $110, but the SSO target for the week is more like $116.  From there declines can dominate market direction again.  This is exactly what my weekend comp report suggested as well.  Although we can get a solid bounce back, the volatility is not likely done.  Not by a long shot.

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