#19 JUNE 28, 2012 SHORT DESPITE SHARP NEWS SPIKE RALLY

Situation–Went short S&P on limit order near top of flag forming near low end of trading range, looking for downside breakout. Used 4-cent stop. This was reasonable trade. Noticed there was sudden sharp rally, which turned out related to news of decision to support Spanish banks. Market stalled near entry. Considered lowering stop sharply or getting out but stayed with original stop and was stopped out as rally carried much further.

Mistake—Sharp rally occurred between US close and Europe open on big news item. At a minimum would have needed to allow for news to impact the next Europe and US sessions. Market rallied sharply through both. Should have lowered stop to near breakeven or gotten out at small profit. Never be opposite news that is causing sharp reaction before main sessions.