Going to Play...But very Small!

I have been out of the markets for what seems like an eternity...I think it has really only been about 3-4 weeks, I do not know for sure. I need to stay focused on the new job, but I also need to make some small plays here and there to continue the learning.

So as we end the most recent earnings season I think that the market lacks any catalyst to make any new highs this summer and that 113 is the top that has held in June, July, and August. The market still has many issues to work through and as we continue to get feedback from different leading and lagging indicators, we are continually reminded that growth is slowing and that the numbers are not indicative of a normal recovery to end a recession. Slowing growth was to be expected after the initial bursts from all the stimulus and bail out money that hit the markets. I am still in the camp that we go lower in the short term before we go higher. These problems can't and have not been fixed in a year. It took many years to get in this mess and we have only put band aids over the problem time and again.

Anyways take a look at the most recent price action from the SPY the past few days after testing that 113 resistance level and after an impressive ralley off the July bottom near 101.50. I think selling is coming back to the forefront and will at least until the next opex in September if not until the next earnings season.

I think the selling will lead to cash flowing from risk assets like equities and into "safer" treasuries. This move may or may not be exaggerated causing a further up move in TLT. Either way I think that TLT will at least remain stable at current price levels as long as we stay under 113 on the SPY. To take advantage of this I want to sell the 100/98 Sep '10 Call spread, currently trading for $0.50.

Like I mentioned in the above post title I am going to keep any trades I do very small (1-3 contracts). To start the position I am only going to sell 1 vertical spread and look to add up to 2 additional spreads. A solid close above 113 on the daily chart would get me out of this trade.