Shocking, stunning and overwhelming!. For sometime, we've felt that we are going through an unusual period where the conventional method of thinking just do not apply to this market. Seems the FED was thinking the same in what could be thought as an act of desperation in days to come. We said the FOMC is likely to announce something new to look proactive and even said the market might be anticipating to buy treasuries. This latter still seemed implausible, just ask every currency/ bond/ trader feeling jolted tonight. Lately, it's getting to the extreme side of unconventional, this direct intervention hasn’t been seen since the 1960’s. As a trader, before you enter a trade or plan a trade, you ask yourself, "what's the probability of this and that?" There was little probability of this FED act and is somewhat disgusting as they hinted away from this treasury buy as late as a week ago making for a stunned marketplace today. The coupling of the market coming to a technical key (SPX 800) and with the majority of traders thinking of a mute FOMC announcement it looked like a sell off in the making. A question is what do they know that we don’t know, maybe it’s something on the banks, TALF may take more time to get going than previously envisioned and/or of things to come in the economy. It's definitely a sign of alarm over the FEDS heads as they couldn't wait for the TALF to spur things. We can only hope this bomb will be viewed as a positive in days, weeks to come and we can concentrate on trading individual stocks/ sectors on the long side as before than trying to manoeuvre around the SPX and the ETF’s. Hope is to get away from the technical trades that have consumed most retail traders due to lack of any concrete group action. Hopefully, a beneficiary group will emerge due to these FED actions.
One lesson learned here and for many again is the old basic of not fighting the tape of the market!. If we see and say for days ... shorts are not lining up new positions due to upside risk to news.`...why do even bother looking at all those technical levels as possible reversals. It was the trend that was signalling fear of upside risk on newsflow outweighing the downside risk to previous lows. If we had stuck to initial ideas of conviction buying coming in on a break of 740 and a meaningful bounce possibility from the Mark of the beast` 666, we`d have no regrets today. Everywhere you look tonight many are second guessing themselves, either because they did not follow through on first long ideas or going short, trying to fade the market at higher levels. Simply, the tone had changed towards equities and no resistance levels mattered after we continued the squeeze through 740, but with continued head-winds and remembering all the failed rallies in the past months, you were somewhat programmed to think the same would occur instead of just going with the trend, herd. When we traded our themed earnings winners, IBD momo stocks, it didn't matter these stocks had way overbought RSI's, we just continued trading the trend very profitably.....the market indices have shown it is capable of the same this week.
The "good probability idea" trade is staying mainly on paper as the risk of being rolled over is too great. The Fed delivered a big blow to shorts by announcing this big spending program as they boosted their balance sheet by another 1.150 bln, a balance sheet that is set to grow to about a 1/3 the size of the economy. This will ensure that the rates stay at an exceptional low level for an extended time, so the economy can get back on its feet. The FED has basically bought more time for this to happen, it’s helping everyone from the small business owners to mortgage payers to lower their cost. This is by no means small news and arguably the best news we could possibly get, but pronounced headwinds remain. Let the debates begin and hope this time, it finally becomes the game changer move.
The trading result is equities went over SPX 800 before pulling back some to close at around SPX 794. This is just wow kind of action and reaction. The centre of the action again was focused on the financials. We have been having back to back to back.... gains from some of the familiar names in the past few trading days. Right now, there's no point arguing whether the move is justified or not. What's done is already done and we have to settle ourselves into a good trading frame of mind going forward to dissect all of the recent events. The market has been in an over extended mode and there's no telling how much longer it will extend. The short covering continues. We will watch the next couple of days to regroup ourselves and watch/ digest of what may or not work going forward. We have to look at this as a potential fresh start in going back to basics of trading. Again, there's a lot to take in right now and we have to think thoroughly on our main trading strategy for the next few weeks and see if a posiitive group emerges. We know a lot of other traders are in the same boat as us and it‘s best to be sidelined. Despite the huge gains recently, we know for fact most traders aren't having big trading gains unless they are into extreme daytrading. This market has become a "trader vs. investor" lately and we have to be extremely cautious when deciding our next course of trading action.
This is going to be one of the most remembered Fed days in history. The heads are spinning to this jolt.