Using the Short SPY for Protection

The ProShares UltraShort SPY (NYSE: SDS) has climbed concurrent with overall equity market weakness. Let's notice that the price structure is approaching critically important (and stiff) resistance between 40.90 and 41.15, which if hurdled, should trigger upside acceleration to 41.50, and then to 42.50-- and likely will be correlated with an upside breakout in the dollar, and a powerful flight to quality in the bond market. That said, as long as the SDS remains beneath the 41.00 area (roughly), it will remain within a wide consolidation area down to 39.25. Only a plunge that presses the SDS beneath 39.25/00 will cause me to exit my long position because such a signal will argue that the overall market is in a powerful upleg that points to a retest of the Oct higher near in 1100 in the SPX and 1099 in the e-SPZ. For the time being, I am content to "ride around" with the SDS within the above mentioned range as protection against a sudden, dislocating market event (such as an overnight short covering 5% spike in the dollar). MJP 10/30/09 Noon ET (40.35)

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