Googing Down?

Goog fired a bomb at 1500 cst resulting a quick 35 point break in NQ100. SP500 fought off some of it's 21 point but still finished a good deal off of highs. Look for indexes to set up lower before the unemployment comes out in the morning.

GOOG and Unemployment

Indexes turned around in the morning and have kept moderate buy pressure on the SP500. A strong finish for the week would go a long way in establishing a bottom, but plenty of trading ahead between now and tomorrow's close. Also, GOOG reports after the close so trading beginning this afternoon at 330 CST may be very active. Unemployment number in am.

Back and Fill or Back and Fall

Today and tomorrow the indexes will begin the process of filling support and or passing through it. SP500 futures 1310, Nq100 1761.5 and DJI 12112 are important areas to build around. Any slightly negative news is over reacted to and any friendly stories are shrugged off. That is the 'wall of worry' needed to be scaled. The bulls have the election year on their side and the bears have the trading skills of bankers as an asset.

Selling pressure in moderate to strong as of this post.

After the Fed

There was never really anything behind the market after the Fed announcement. In fact, indicators went from neutral to moderate to heavy sell side risk with twenty-five minutes left to trade. This was just before the break in SP500. Futures are down hard in the early trading for various reasons. DJI, SP500, and NQ100 will enter the defensive stage now to see what is down below. Sp500 spot 1340 still key area.

After Fed

Fed did the expected. Rally with number but no big buy pressure in Sp500 or Nq100 after announcement. As of this post, indexes in neutral zone.

Fed Day

Waiting for the Fed announcement today. Yesterday's action in the DJI, SP500, and NQ100 demonstrated again that there continues to be some pricing going on in the market. The daily price action this week should test all the data from bad debt to rate cuts and reveal some direction for the rest of the quarter. Getting the three indexes to reject the lows and close strongly over the August lows is required for a bottom. Obviously, risk picture will be changing today after Fed.

Pre Fed

Markets within normal buy/sell strength range this AM. Most think Fed will lower a half point tomorrow so we will begin to find a footing for the pre-announcement trading. The sp500 futures 1340 the bull reference area. Action of Wednesday afternoon will begin the battle for weekly move.

Today's Action

Market performed well overall with continued buying strength concentrated in the SP500 futures. The NQ100 surged late after a head fake late to the downside. Markets are positioning
themselves for another battle but the outcome this week may determine much of the years direction.

More Is Less

There has been much discussion about the failure of brokerage/hedge operations to predict the potential disaster in the sub-prime market. The VaR (value at risk) models , it is pointed out, failed to protect positions from 'the event' and as such a new methodology is needed.
It is further explained that the credit agencies themselves did not evaluate correctly the implications of these financial instruments.

While all of the above seems to fit into the obvious explanation for the mortgage meltdown, there is a simpler explanation. When designing risk models, nothing will be more important to the management of actual positions than an exit strategy which takes into account the size of the position on the books. The ramping of single strategies by every trading operation in sight is going to effect the ability to maneuver the position when it is time to get out. The sub-prime disaster was created by the mania to compete for debt transaction fees while ignoring the implications of heavily ramped risk models. A great trading strategy consists of a risk design that can actually be executed. Markets are not liquid just because the trade volume is large. In fact, every experience trader knows the larger the position, the less liquid the exit price. That is trading 101. The fact is, these trading operations are not a bright as they would like you to think. They are just risking more per unit to make less in volume.

Battle Week Coming

As mentioned in previous post, next week could prove pivotal for either the bear or bull camp. Except for the eighteen trading days from Sept. 18th to mid Oct. 11th, the SP500 spot futures has been trending lower. Since mid July 2007, the spot futures technicals have been soft and might have finally entered the exhaustion phase this past week. A bottom will take some work while a failure will produce more selling from a slowly emptying liquidation pool. The battle line for the Dow Jones Industrials, SP 500, and NQ100 will be closing above the August lows. That is not very far for the Nasdaq 100 but around 2.5% to 3% for the others respectively. Stimulus for the Fed and or Congress has basically been priced in and now the issue will be whether or not the price construct will form to support a run in 2008. Something very few are looking for. The bears have the upper hand but are vulnerable.

Week to Tell

The week left some carnage but ended well of the lows. Now if the markets can survive the continued quality trading techniques of the French and the limited skills of wall street, maybe stocks can find a bottom. The Fed will meet and cut in the coming week and downside filling will be the battle ground for the bulls and bears. Even the bulls are doubtful about any rallies having legs, so at least that is a positive. If this market is no good, it will tell us by Friday.

Trading Risk

It is hard to imagine how any operation can lose 7.2 billion dollars especially the way Societe Gererale did with such a extended trade clock. This was a trade in the making and with any risk management system review process, one would think any seasoned manager would pick up on the problem. But given the nature of the real talent at most financial institution's trading operations, anything is possible. Transacting many times is confused with trading. Quality trading operations are great risk designers, able to blend multiple elements of various trading strategies to capture opportunities is rough as well as smooth markets. The best known in the hedge community have been passing transactions off as trading and have been left with large positions without benefit of trading programs with superior trading risk features.

Markets will try to continue to distance themselves from the lows. Sp500 futures test of 1340 will be first opportunity for the bears who are hoping this recovery slows quickly.

Train Leaving Station?

Market did a great job of hanging in there today and finishing well. Microsoft after the close boosted NQ100 after hour cash by 26 points and opening the NQ100 futures sharply higher.
Bears had hoped for a reversal at best today but have to be discouraged with the close. Bottoms appear rapidly as mentioned before in recent posts, so some scrambling may lift the market as we swing into Friday with a potentially big upside price reversal for the week. Trying to pound these markets in an election year may just be too much for the bear to endure. SP500 futures left the 1318 value area without any consideration today and need to close under 1340 tomorrow for any bear hope.

Stabilize?

Market looking to stabilize today and filter through some of the workout data being tossed around. Yesterday's volatility caused several order entry problems at some operations. Strength of the buy side indicators in Sp500 were strong all day with NQ100 showing little and ultimately dragged along for the ride. Buy side strength is SP500 is moderate this am. Yesterday's top of value in Sp500 was around 1318 and a test would seem likely.

Bear Run Over

Well the bottoms come quick and distance themselves from the lows rapidly. Since no one seems to believe this rally it may the a significant low. Back and filling will be a force as mentioned in prior posts but a sideways to higher action may become the norm. VIX will again be the victim since it has been the play. Techs may be the beneficiary of this bottom more than the SP500, todays leader, because they tend to attract the spec dollar. Look for Sp500 to test 1318.

Testing Markets

The NQ100 has had the worst of the down action. AAPL liquidation continues as the true believers get pounded. Hedge fund managers are cashing up and are looking at competing with treasuries for returns in 08. Do not look for direction from the managers anyway, they never lead.

Bulls will have to hope that back and fill action does not turn into a rout and that the Fed/gov continues to pepper the market with gadgets. These gadgets have to establish a price for markets to build on. In 1987, the Treasury Dept. used the then MMI futures contract at the Board of Trade to enter the market with a massive buying program. Turning the arb turned the market. Though it may not be as easy this time, a financial cocktail of some kind is being considered.

Back Off

The Fed release of the rate bomb did what it was supposed to do, basically telling the sellers to back off or risk another stimulus weapon. This effect may diminish as time wears on but the shorts have to respect any surprise announcements. NQ100 responded also but did not have the recovery energy of the SP500 and DJI. After the close AAPL was a disappointment so the market hit the stock. Even so, early risk models show diminshed selling pressure but more of a liquidity issue for the NQ100. Look for the SP500 futures to test 1390.

Mixing the Market

Fed putting something into the mix this am. Traders will have to duck around the stimulus events if they can. Jim Cramer of CNBC has been all over the TV yesterday and today. Last night the guy was trying to tell people how to watch his show, explaining when to listen to him and when not to. What a clown. A market pimp that cannot shut up. People who listen to guys like that are getting crushed.

Market will give everyone something today but the liquidation events are always looking for rallies to sell or pound end of day trading sessions if there is no bounce intra-day. Selling will only back off if it is punished. Look for the mid point in SP500 of the after the Fed announcement rally to be the guide as to relative strength today. If you cannot get through there and hold, then the liquidation will keep on coming.

Bull Fish Bear Meat

In the beginning of the second week of October of last year, this blog talked about the odor coming from the stock indexes and the bull fish bait being consumed by managers. Shortly afterwards we made new highs and now are faced with the death dive feature of trading. Now the death dive rationales are less frequent than the dumb ass long for the long term rally rationales but they contain the same three idiot elements; (1) a certitude about the direction, (2) an inability to define a risk strategy for the direction, (3) a complete surprise when the trends reverses. So this hard break is reaching maximum speed because it is all about getting out. Getting out at prices which are not very attractive but better than zero. Like most breaks such as these, they end faster than the methodical bubble rallies, thus the adage ' eat like a bird, shit like an elephant.'

So bulls take solace in the fact that the bear's meal usually is brief by any measure, but you have to let him eat.

Wash Out

Liquidation continues this am with the first signs of a washout or the 'keep the cheese let me out of the trap' reasoning posted recently. The bear has had approx a two hundred point break in the SP500 to capture and they can take the rest of the quarter off. The recovery day off the low will be rapid when it occurs but beyond that, the early stages of the bottom will be filled with downside headfakes. The various reasons for the break really do not matter, rather it is the internal make up of the price range and the opportunities available which should concern the trader. The bears are in charge but are now as unsure as the bull about where the bottom will appear. Few will see it and even fewer will buy it.

Trade Mining

Index markets were everything but kind to the bulls this week. Rapid new lows followed by early morning rallies which failed continually. Potential Fed and political relief were viewed more as a possible trading opportunities rather than anything substantive. Talking heads pleaded for relief but there were no indications that any news would have been anything more than a selling point.

Next week will bring more vol but action enough to begin to build some sort of base. NQ 100
will still be favored but substantial short covering in the SP500 could be powerful.

Trade mining and capturing profits in daily ranges since August 07 requires blending fade strategies which are limited in trade clock exposure. Three of the four components of this model trade only during NYSE day session with one component taking a 'on close' position.

Technical Action

Looking at the technical action throughout today on this triple witching leaves little insight into when the this general correction will end. Selling pressure indicators for the SP500 have been running large since the opening as they have over the last several sessions. The Nasdaq 100 has had less pressure but has not improved it's overall downside profile either. The Friday before a three day weekend can bring late selling if there is an opportunity to pile on a weak session. A close over 1367 in the March Sp500 futures would indicate short covering rally will continue into next week.

Patients Should Be Investors

Listening to CNBC and the long only advisors saying that 'investors should be patient'. Sounds backwards and great advice if you really don't need any. The market is having to adjust to selling that is generated by liquidation of even quality holdings to offset and balance lousy positions in other areas. One never really know how long that will take.

Keep the Cheese

Bernancke could not please the markets which is probably the first intelligent thing the guy has done since taking over at the Fed. The market needs to price a quantity of crap and given the technical action, it has not finished. So maybe the Fed is saying "money is cheap, that is not the problem.' This will make the long only crowd unhappy and dissoriented about the their new surroundings as they trip over other due north positions. The 'keep the cheese just let me out of the trap' pricing may be here. The Fed may hear them.

Trade Action

Trade action today was all over the place and allowed the bottom boys to run with the indexes for a bit. It is better to trade both sides these days than allow any position to become a burden. Fed relief has not appeared in the form an any rate cut as of this post but many traders are anticipating some form of emergency action. Disappointment may lead to another leg down if the market is devoid of buyers during the turn into Friday.

The markets technical retracements during the daily session do no give the bull anything to build on. When given the chance to fail support, it usually does. DJI has now closed twice under the August lows with the bear market confirmation close at hand.

Rate Bomb

Bad day for indexes followed by after close data that broke the markets significantly below daily session lows. The tech sector which was the relative strength leader early in the day turned south when Apple began to slide. Intel put the kicker in after the close with a big miss and piling on has led the market to gap lower in after hours trading. Whatever the oversold indicators may say, the market is looking for help from the Fed at the least. The great money maker banks and brokerage firms have continue to leak money and market confidence. These great profit drivers from LBOs and proprietary trading of less than a year ago now appear to an assemblage of over paid idiots who are lousy at trading but great at transacting.

Market will try to rally out of the depths of this current break but will need decisive price action and some distance on the upside to confirm any bounce. Traders will hope for the rate bomb from the Fed.

Rally on IBM/Oversold

IBM helped the market in a big way today with a +5 dollar surge. Good new on earnings still leaves the beamer with over a 15% decline from the October 11th high. Lots of work ahead for the buyers. Indexes had a fairly quiet day in contrast to the 1 minute 23 point rally in the sp500 index futures at about 2 am est. Otherwise nothing notable about the overall rally today with values still needing an upside push to change the current downside dynamic.

Program Trading

The natural evolution of the ever expanding volume of electronic algorithmic trading and present economic conditions has helped to create an extraordinarily volatile daily price action in stock indexes. The art of designing trading programs which will provide consistent returns in deep markets has been the goal of program designers from both big and small operations. Skinny markets have always attracted strategies to search and capture improperly priced instruments, stocks or indexes. These 'parasitic' programs last until the proper bids and offers relative to surrounding instruments take hold. The other downside of skinny markets many times is that they often times are used as legs of protection spreads which become problematic when market conditions change rapidly, (LTCM and Subprime).

So trading well in deep markets has allowed the proliferation of volume programs pushing bids and offers about and making entities such as CME Group extremely profitable. But it is harder to trade well with size when prices moves a bit faster. The adaptability of a particular program's decision logic is tested in markets of unique volatility as we are now experiencing. Across equity indexes, financial instruments, and now many commodity market electronic trading platforms, tremendous movement is revealing both opportunity and risk for trading programs.

The speed of price also decreases the duration of down-trends and up-trends. Events unfold and are adjusted to rapidly in the transparency of price action and ultimately cut the time adjustment. The bears looking for to a sustained downturn given current stock action may find two possibilities; (1) a large break will rapidly unfold forming a bottom quickly or, (2) the break is about over.

The given is that most banks and underwriters have failed to understand, evaluate, or audit risk well. Successful trading programs lead in analyzing risk quickly and efficiently. Electronic markets react to those processes and are better off for it.

Duck Bernancke

The bear's life is one of ducking financial stimulus news from various sources. Bernancke, known as Mr. Accommodation, told the traders today he might release the rate bomb at any time. Now the bear has enough to deal with when illiquid rallies continually harrass, but the deafening sound of the whining of Wall Street affects the bear's position the most. The Fed hears these noises and worries it has not figured out the proper remedy for all that ails the US financial markets. So now the Fed has decided to reveal ahead of time it's intentions to reduce, probably by one half in January, and continue to use other influences if needed. This action puts the pressure on the bulls to perform and to avoid the resulting fear that may occur should any sharp sell-off reveal some exceptional underlying weakness. The bears will have to gather in the corner of the room and rush the market if opportunities present themselves, otherwise, keep ducking.

No Bear Today

DJI, SP500, and NQ100 staged reasonable rallies today though it will not convince the bears that it was anything more than a pause. Lower lows across the three continue to be the norm. Market has played the last two days staging a value area only to run from it in the last twenty minutes. Look for the same chop action tomorrow.
Tags Sp500 1405 1494 NQ100 1945.5 1928.5

Bear Showdown

The bears showed up today after getting run in last yesterday and early today. Though not officially a bear market, despite what CNBC is saying, it is oh so close.Some blame has been placed on the uncertainty of political season but the current administration along with the banking problems leave enough ugly for all. Now the market is spooked and nervous about a total bath but lack of follow-through will bring quick illiquid rallies.
Tags SP500 1419 1402.25 NQ100 1940.75

Choppy Action

Markets were mixed on light volume in an almost illiquid action capped by a substantial rally off the lows twenty minutes prior to the close. Bears continued to score as DJI, SP500, and the NQ100 slumped into new lows for the current move. Fed speak will be a part of the week's trading environment.
Tags SP5oo 1420.25 1418.25 NQ100 1974.25 1963.75 STI(Down)

Bears on Verge

Orderly retreat on the break with the bears on the verge of a downside confirmation in their third attempt to close the indexes in technical jeopardy since August. They have worked hard for a long time and have the Dow Transportation Index providing evidence of recession. But we have been here before and each time the bears have failed to hold the market down. The trading action of going down' bid ' continues to indicate the presence of buying interest from cheap dollar beneficiaries. The NQ100 has had a particluary tough time this week as it continue to retreat from solid action in 07.
Tags SP500 1427.5 1423.5 NQ100 1989 2015.5 STI D

Testing NQ100

Bears riding the liquidation train in force, trying to ride the NQ100 into and through the November lows. Volume not huge, but painful enough for the bull.

Bears Pound Early

Jobs number giving bears some life. Dow Jones Index needs to close under 12743 to confirm the downside. Market down hard but selling pressure as of this post is light.

Waiting for Jobs Number

Market traded with little action today waiting for tomorrow's job numbers. However the NQ100 futures staged a late surge. Volume in stocks has been less than usual and the CME has been pounded a bit as many expect to see diminished transactional income as trade activity falls behind the three month average.
STI (UP)

Smacked

A commodity frenzy smacked the indexes around today. Gold bulls, the bottom of the trading animal family, joined with oil and ags to help raise the inflation flag, convinced the Fed will keep on plowing money into the financial system. Even if they do not, the demand, the demand, the demand. Commodities today seemed much like the first day of stock trading in 2000. Basically it was just a matter of buying in January because stocks would be up at least ten percent by December 31. Well, we know how that ended.
Tags SP500Mch 1465.75 NQ100 2091.5 STI D

Bubble Boys

Soybeans are trying to rally into the teens for the first time. Hiding in plain site are the bubble boys whose insightful trading skills brought about the sub-prime disaster. Now the same creative crowd marches in single file in the soybean aisle at Bubbleland. At least a fundamental case can be made at times in a transparent analysis against soybean consumption and the resulting carry-over supply. But either way it usually results in a 'gaming' of the carry-over number. Some years 300 million bu carryover is enough, sometimes 100 million bu is enough. The greater fool theory here is played using the China card, which is the ultimately the face of global consumption. Reasoning, if China needs just a little more, that equals a lot more. Further, if South America or the US cannot continue to produce great crops one after the other, the supply rationing will justify the current squeeze higher. So the bubble boys are betting that somewhere in the near future the production machine will slip up and save the current price bubble. Good luck. These price constructs always end with the same guys shouldering the heavy weight of trade ideas grown old. Remember that commodity markets have a habit of making illiquidity an art form when comes time to head south.