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Entries in Intervention Game Changer (3)


...and finally, the kitchen sink

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.

Mar202009 after

As expected,  a good nights sleep,  maybe some nightmares after the FEDS big bang and the euphoria died off in the marketplace today.   You have to be encouraged by the muted tired feeling action, it's better the recent market gains are digested and not relinquished today.   Support at 775 never threatened.  It’s actually funny to hear the word ‘catalyst’ come up again today.   Now, it seems the market wants /needs another catalyst to go further.    Well, let’s put it this way, the FED essentially used it’s last bullet and we’d better get on with life.   What a greedy bunch we traders/investors seem to be,  why not just give the FED "big bang" sometime to take shape.   What did emerge today and what will be the buzzword going forth most likely is inflation.    So, as the market contemplates the stiff ‘800’ SPX (50MA today) at overbought RSI levels with banks-brokers rolling over as the short cover buy demand has abated today, note (seems the Citi pref-common swap trade went against some big hedgies (short common/long prefs., which caused a vicious short cover rally in many of the banks),  you either continue to get caught up in this technical driven market or as we pointed out start looking/ hoping for a group/ sector that may benefit from the FEDS stunner and move away from the technical trade dictating your every move.     The market will do what it needs to do!.    At this point, there are still upside risks as we come into month/Q end for the shorts and that may keep the market from a major pullback and instead break the 800 hurdle later next week.     Right now, we’re going to concentrate on a basket of inflation linked equities and the inflation expectations noise.    Maybe , it’s too early, but the market is quite giddy and it may just rotate quickly into a commodity trade.   It’s only a guess or hope,  but.  with Q end coming it is the perfect time seemingly to get the hedgies to prop up their books.   No better way to do it than try to move the heavily shorted beaten down commodity community..steel (SLX- etf), coal (KOL), E&P, oils, Ag’s-Chems.   

As you remember when we traded with those sectors in the first half of 2008,  the market on a daily basis did not have be green for these stocks to be in the green at the close.   Those days we didn’t care what the SPX was doing, we just went with the individual equities/ sectors.   It might be a dream that months later we can have the same outcome,  but today with the market pullback our shadow list is pretty well all green with many in double digits % gains.   We’ve updated the shadowlist today (link on left at site),  putting back more of the stocks we followed and discovered before many 2X or 3X last year.   

Still, understand that there is NO current bullish news in the global steel/ or iron ore business etc.. The physical market is still slowing, but with stimuli effects in China slowly emerging and with this inflation buzzword coming into play, sooner than later the stock markets participants in these areas will have to start looking forward and not pinpointing day by day activity in March of those markets.  The risk-reward ratio is much more appealing now than it was days/weeks ago for commodity levered equities.


DJIM #12, 2009

Heading into the last trading week of the month, we can't help but feel emotional when looking back at the events that have transpired up to this point.      The biggest question on people's mind these days is "have we seen the worst?"    Nobody knows!    What we do know at this point,  is that there is a sense of stability returning back into the financial system.    Of course, none of us really have the first hand knowledge on how things are or going to be with the financial system in U.S.    Judging by the action from the government, the announcement from various banking CEOs, and most importantly, the stock action itself, you can't but feel that we may have seen the "worst" in these financial companies.    

Just a couple of days ago,  Fed announced some drastic measure to pump another 1.2 trillion into the system.    This weekend, there's news that Geithner will announce details of the long awaited "toxic asset plan" as early as Monday in more attempts in putting a stop to this crisis.    We have often said in the past,  it will take time to fix a broken system.     As long as the system (financial) does not break down due to total lack of confidence,  then everything else is recoverable.     At this point,  we have to believe that the government is doing everything it can to restore confidence, unfortunately,  bonus bill is getting a lot of negative headlines after the Treasury buying news.   We may all not agree on a lot of details of its plan(s) and even go as far as question the efficiency of the plan(s) going forward.    However, we have to agree that they are at least on the right path and it's all we got.     For now, we simply don't want to bet AGAINST the government.

Over the past week, shorts have been literally vaporized by this market.    Market itself has pulled back on profit taking to the SPX 770 area.   We view the action Friday as a healthy 'tired action' pullback, primarily because we're not seeing shorts reload, we've been highlighting in bold here recently... "shorts are not lining up new positions due to upside risk to news".     The toxic asset leaks this weekend is one big risk for the shorts.   As traders,  we are looking for the strongest sector on this pullback and we really like what we saw from the Commodities, even on the pullback Friday     During the next little while,  our trading thesis will be focused primarily on the commodity sector, maybe the financials will again be in focus if the Geithner is liked by the market.    We have explained in the past couple of Journals on why we like the commodity (buzzword, inflation) sectors going forward.    Oil and oil related are a main concentration, but we are allowing everything from coal to steel to get back onto our trading list.

There will be some economic data in the coming week.   We'd also have a good glimpse where the short term support is for this market.    For now, we are definitely looking to trade up on pullbacks within the commodity sector.