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.