October Begins

Bunch of data this week but most think the fix is in anyway as far as Fed is concerned. Starting the last quarter with eye on new highs in DJI, SP500, and continued strength in the NQ100. October will be reversal month if there is to be one but the bears have little faith in their own abilities to turn the market. Commodity bubbles abound so their collapse would play badly for the world growth folks. The vix longs have been shelled so a rebound there is likely.

Betting On Direction

The impact of the housing on all markets is the topic of much discussion. The glacial movement of an illiquid market is hard to scope. It is fair to say that the all markets are in a large part tied to housing and the debt equity cash driver created over the last ten years. Since serious house value declines are being reported through out the US, the threat to the economy is probably being under played. Fresh from their victory of brow beating the little Fed chairman, wall street is pointing to the upside of Fed stimulation and the resulting rallying stock markets as proof. Commodity markets are still hot with large fund participation willing to bet that lower rates will provide free money. Tech stocks, the true leader of any real bull market, are poised to break out to the upside. So then which is it? Starting of the good times as in 1996, or gonna get real bad like 2000? The markets will tell us in October. Should the tech stocks fail in the current configuration and or commodities reverse, bet on down.

Commodities

Commodities such as crude, wheat, and soybeans have entered the idiot rally phase where the lack of selling provides the bull with that bullet proof feeling. These prices are reflective of the overall environment perpetuated by the Fed for years. Money is free and tales of tight supplies have captured the attention of the limited trading abilities of hedge fund managers. This of course will all end badly for the longs, even the crude freaks who may have had the best of the price runs. Why? They will tack on a reason on the way down which will be of no analytical value to the bulls. Anything that comes out of the ground can be sold with certainty and this time is no different.

Down Outlawed

Markets continued their rise today after the Fed accommodations yesterday. Clearly one who dislikes confrontation, Bernanke capitulated to cries to save the trading houses and banks from themselves. The dollar continued its death dive as all the elements toward serious inflation have been put into place. The experts on wall street can assure you all is well only if there is free money and the markets are going up. Since a five percent correction now is considered a crash, immediate action is always required. The Fed has been convinced that always up is always better than anything down, regardless of any previous economic convictions.

Alan Bernanke

Just call him Alan. While Bernanke would like to fix the looming inflation problem, he lacks the fortitude to accomplish it. So what has changed since the Fed's previous stance on interest rates? Nothing. Starting with Greenspan, the Fed has worn out several pairs of knee pads giving wall street comfort. But hey, the Fed must be on top of things. They and their underlings are always conducting studies, economic studies. Deep stuff. Why Bernanke himself must have written tons of that crap. They might want to conduct a study examining the Fed's tolerance to withstand whining. A parallel study might be how the Fed might direct deposit money into bad trade accounts after heavy whining is detected.

Bernanke Charts

There is no doubt the Fed would be satisfied to see most futures charts head south for a time. The ten year, oil, wheat, gold, indexes, and others sliding in a dull but hefty correction as the Fed
provides an inflation fighting environment for the years ahead. This kind of squeeze on speculative investment initiated shortly after Bernanke took over is hard to orchestrate especially when wrestling with the financial instruments created over the last ten years. Projecting confidence while promoting corrections is even harder as free market wall street begs for a help. Save the little guy usually means save the big guy whether on wall street or across the vast agricultural lands covered by farm subsidies. Saving the bull trends is the current battle. Many of these charts look toppy or tired. Bernanke would like to give them a little push lower.

Bolt or Bust

Somewhere in the technical nature of tops the marginal advantage turns to the sellers just a stories about absolute demand and waning supply are finally accepted. Whatever the market, this usually is followed by rapid declines and emptying P&Ls of the ever believing bulls. Commodities across the board have been in the bolt phase and may all be meeting at the top of the same balloon. Crude and wheat each carry the same question that claim all markets in rapid ascent, where to get? Global growth has been a huge factor in explaining all that rises. But there are no tsunami alarms to warn of the impending wave of selling should the global growth story suddenly be interpreted as over. These volatile markets make every good trader, short term or long ask, where to get out? For commodities the answer maybe here.

Risk Appropriate

As mentioned in other posts, managers are buying NQ100 for the long haul. Along with treasuries, the NQ100 is viewed as risk appropriate in an environment where performances have been hurt by various contrived strategies. Traders will look at Friday's commercial paper action to get a read on the taste for business debt. Despite positive action over the last several days, the market is vunerable to reversals. The August 8th highs are the benchmark for relative strength and could indicate technical roll over if not recaptured soon.

Bearly Lower So Far

Given the entire discussion over sub-prime/commercial paper implications, major brokerage house debt trading at junk status, and the supposed Fed's unwillingness to aggressively cut the fed funds rate, the bear would seem to be in the position to drive the DJI, SP500, and the NQ100 lower. New recession worries would certainly provide the bear market handle some credibility. So far however, the bear has been turned back. Failure to close under the March/April lows on August 16 did not help their cause. Of course it was quite interesting the market had such a powerful reversal the day before Fed intervention, but it pays to be wired to the inside. The reason for the indexes continued support, it is explained, is that the Fed will ultimately deliver whatever is needed in containing the downside and preserve the bull run. Now the Fed may not be as powerful as people would want to believe, but the bulls still hold the upper hand until some serious technical damage can be done.

Market Today

Today another range trade day with all indexes avoiding a test of the 50% retracement. It would seem hard to make a two hundred point break boring but the market succeeded. Big liquidation never seems to show up and there is enough interest in buying breaks that the downside is limited. Look for the markets to listen to Bernanke on Tuesday for further guidance on rates. Despite break today, technical damage still minimal.

Open One Window Close Another

The Fed would like to open one window and close another. The first window being the discount rate strategy which soothes some of the liquidity issues for banks and more importantly promotes the image of a watchful central bank. On the other hand, closing the window on the Greenspan era is something Bernanke is trying to pull off but is finding it to be a tricky given that the markets may believe he has already created the ' Bernanke Put.' Regardless of the unemployment number on Friday the market will be concentrating on various strategies by the end of next week. A large treasuries bet has been placed and significant damage would be done initially to that market if the Fed were to avoid cutting rates. The bet primarily is that the Fed will cut and continue to cut. If they do not, it is reasoned, the market's resulting downside will force their hand anyway. The dilemma for the Fed is that there remains a sea of cash ready to move across stocks, commodities, and yes, even in real estate. It would like to temper demand by at least having the threat of higher rates as a weapon. Some are hoping Bernanke may reveal his intentions prior to their meeting allowing the for the adjustment to the up or down meter.

Taste for Treasuries

Treasuries had a nice move today as everyone in the hedge community loads up on the long side. The hedge monkeys will do one thing until in hurts and treasuries are their current flavor. Hunting for big returns has been replaced by the hope of that the client returns. Alpha now means being satisfied with traditional benchmark performance.
The markets are range bound until next when they either test the low or try to close over the August 8th highs. Either way there will be some swings with volume greater than the last ten sessions.

Market Pause

Yesterday's overall performance was encouraging to the net gainers but the internals acted poorly. This market is clearly in a range trade marked by the August 8th highs as resistance for the SP and the DJI. The NQ100 has eclipsed that high which is indicative of the continued play to buy the NQ for the long haul. Bulls have had the advantage since the Fed intervention but will have to now pause and see how the market deals with Friday's data.

Liquidity Mystery

Markets will fight the range this week with an increase in volatility picking up the week of Sept. 10th. Stories about the lack of liquidity during high volatility continue to be the topic when discussing various financial instruments. Treasuries are receiving the liquidity vacuum spotlight. Traders are shocked. Why? Liquidity disappears when price swings begin to become more erratic. Always has, always will. Convincing others to stand in front of a financial freight train and make a market for everyone else is tough. If it were profitable, everyone would do it. Half of the time traders do not know where the market is going. The other half of the time they really do not no where the market is going. The latter is when liquidity disappears as bids and offers are so wide you could drive a truck through them. Sometimes it is better to be on the truck.