Once again we saw an end of the day selloff yesterday after indices challenged critical resistance.

This morning is a repeat of the early rally we saw yesterday and of course it's too early to tell if the end of the day will bring the same picture.

The 200 day moving average (today at 1108.59) and the previous support level at 1105 on the SP500 remain the target for the bulls and the maginot line for the bears. Until this line can be crossed and CLOSED with conviction, the bears are not going to capitulate and dump their short positions. How long it may take, nobody can predict, but the more time we hammer at those psychological and technical barriers the more violent the final resolution to the upside. We face the same type of stiff support on the other end of the trading range at 1050 and a break there could be just as volatile to the downside. Internals look pretty good for a resolution to the upside but we still want to maintain hedges in place for any long positions we may have.

Here is more on the "Quick & Dirty Daily Hedge":

QUICK & DIRTY HEDGE STRATEGY (even for restrictive mutual fund or IRA accounts...See below).
A shifting stock market has given us some tentative buy signals for the adventurous, but they must be traded with caution. Up until now there has been no effective way for the individual to put on the same type of protective positions as the large hedge funds because the cost of insurance was too high. Typically they use 10%-12% margin to protect themselves during times of indecision.
With the advent of new trading vehicles we now have the opportunity to protect our positions for somewhere around 3%-8% but this is not a permanent cost, but rather collateral and you will get the majority of that back. Typically the maximum cost for hedging your bets should fall in the range of about 1.2% of your total portfolio and if the worst occurs and the market melts down you will end up making money without giving up your long term positions..

The way it works is that you will put on protective hedges as the markets begin to turn up but risk remains high. You can also use this strategy at any time that you feel that you are at the bottom of a trading range which MAY bounce but you don't want to take the risk of a catastrophic meltdown.

Now, how do we construct the hedge? Normally this would be a time consuming and difficult and complicated effort.

As part of our online signal services we have a full featured Structured Hedge Generator which you can see at http://www.pitbullinvestor.com/stockreports/markethedge.html which allows you to construct both long and short hedges on a sector by sector basis, but for most folks they want to hedge long broad market positions at times of risk and for that reason we have come up with a "Daily Hedge" that is published nightly.
Here is where it is http://www.investshare.com/services/stops/QDHhedge/QDHhedge.htm and here is the way it looks:

Basically you look at your equity positions and for each $10,000 in your account you buy the appropriate amount of index options (SP500) to provide the downside protection for your account. Usually this amounts to anywhere from 2 to 4 contracts. If you are trading options only, then we also indicate the number of contracts needed to cover those positions which have increased leverage. Using this simple format you can hedge any mix of equities and options within your trading account.
We have now created an offsetting hedge with an average of about 5% of our total capital as collateral.
That does not mean that we are going to lose 5% if we see all of our investments move in the direction we hope for, because at some point we will take our hedges off, when conditions merit and we will sell the calls back and get a return of premium and remaining value. Typically the actual cost of protection if all of our major trends prove correct is only about 1.2% and if we are making money that gets lost in the noise for an opportunity to get in early or stay in a trade during dangerous times.
WHAT ABOUT THOSE OF YOU WITH RESTRICTED INVESTMENT RETIREMENT PLANS?
Now, that is all well and good, but how do folks who are locked into company retirement programs which restrict their investments and don't allow the use of options protect themselves? During the last 8 months your typical Mutual Fund "Safe Money" saw a loss of 10 years of growth and your accounts are probably down about 40% from where they were in November. Mutual funds offer no cover and there is no way to use a hedge against that kind of withering decline, (or is there?).
Mutual funds continue to promulgate the specious argument that you are investing for the next 5, 10 or 15 years, so don't sweat the bubbles and hiccoughs. Well, if you are my age 15 years has come and gone and if I had stayed in a mutual fund I would have 40% less to retire on this year.
But..But you say...I have to stay in my mutual fund retirement account for tax reasons or because my employer doesn't have any other options besides 5 restrictive mutual funds.Very simply, by opening an options account and funding it with a maximum of 8% cash OUTSIDE of your total Mutual Fund retirement account gives you all you need to effectively set up a hedge against those issues within your retirement plan. Simple, yet effective protection in a market that offers you no other cover.
Enjoy and let me have your feedback.