FOMC

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UPCOMING EVENTS

FOMC Wednesday was not just another day in the market, but both an FOMC day and an incredibly bearish day. Usually FOMC days and a market rally are as reliable as the sun rising in the East every morning; however, that certainly did not happen Wednesday. The Dow, for example, as monkey hammered nearly 300 points from its high to its low. What's more, given the unbelievably good earnings from Apple, this is an especially interesting twist in the recent higher volatility. Me thinks the market is in big trouble! Shortly after the lunch hour had ended, the FOMC deveiled its findings after a 2-day meeting. Not much had changed as we all parsed the statements, looking for clearer meanings of "transitory," "considerable," and most of all: "patient." Frankly, it's pathetic. • FED REPEATS IT CAN BE PATIENT IN STARTING TO RAISE RATES • FED SAYS ECONOMY HAS BEEN `EXPANDING AT A SOLID PACE' • FED CITES `STRONG JOB GAINS' AND LOWER UNEMPLOYMENT RATE • FED SAYS INFLATION EXPECTED TO DECLINE FURTHER IN NEAR TERM So the Fed is on hold with its monetary policy. Interest rates will yield savers near-zero for quite a while longer. As we also know, the ECB is increasing its printing policy as it embarks on QE in mid-March. What's odd this time around, however, are the increasing amount of high-level politicians and prior central planners that finally disagree with this plan. Bloomberg reported one such fellow - the former Bank of England Governor, Mervyn King. "Many countries today can see that they have taken monetary policy as far as they can go." "Exchange rate policy may now become an instrument of monetary policy." "Since exchange rate changes are a zero sum game, there is a risk of currency war." King says disequilibrium in world economy is causing chronic weakness in demand The must be addressed, says King, noting that monetary and fiscal stimulus may not be able to bring a recovery unless the disequilibrium is addressed. (Regarding real interest rates remaining very low for a very long time.) "They may be right, they may be wrong," "If they are right, I think we have a significant disequilibrium in the world economy. I do not believe and expect a market economy to thrive on real interest rates that are close to zero." "If they're wrong, then at some point markets will discover that they have been pushing asset prices to an excessively high level and there will be a major downward shock to asset prices and with debt levels fixed in nominal terms, that could cause some serious problems at some point in the future." Naah, this guy is crazy - right? Up for Evvvahhh! Trade well and follow the trend, not the perma-bull OR perma-bear "experts." Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banking mafia.

The FOMC will "remain patient" in regards to rate hikes was the statement the markets heard. The markets responded by swinging down and selling off for the session. After a tumultuous trading day prior to the announcement, the markets tumbled down into the close. With aggressive selling the last two days, we are now due for a short covering rally today or tomorrow. As we have seen so far this year, traders are looking to sell the rally as much as they are trying to buy the dip. That is why lately we had some wild swings take place in the markets. With Crude hitting lows and major averages remaining unstable, this has been a difficult market for the investor to deal with. Fear not as January is usually a weak month for the investor. We could start to see a rally take place soon enough. Right now I see our ceiling at 2064 in the SPX. A clearance above that level could finally trigger that needed breakout to resume what investors have been looking for. A breakout to the upside into new all time highs. That is what everyone has been accustomed to for the last few years. Until then, we must expect the swings and the volatility to remain. Either way, eventually the markets will either push or break in one direction or the other. Once that take place, look for a massive breakout to happen.With liquidity expected to be lighter due to the snow storm set to hit the east coast, big money traders took advantage and easily slid the markets on down. The DJI finished down 291 points, as the COMP and SPX were down 90 points and 27.5 points. This showed sellers were in control, as we turned lower and slid even further during the session. As the markets tried to bounce back off the lows, sellers came in to hammer down the rally. That has been the case since the start of this calender year. I look for more of the same tomorrow, although I do think we bounce back better than we did today. look for some early weakness, and be aware of the buyers, they are never lurking too far behind. Read More

TECHNICAL DATA ES 2032.75/2002.75 POC 2023.00 YM 17,391/17,217 NQ 4214.50/4153.50

Day trading is tough enough as it is, don't make things harder on yourself when you are using options. There are a number of things you must concern yourself with if you are going to employ this methodology. There are three things you are going to want to consider: liquidity, delta and theta. I hear many "option professionals" tell their clients to just trade in-the-money options as they offer a lot more leverage than going out an buying the underlying and it acts just like the underlying as the market moves up and down. That's great in the theoretical world, but sadly, we don't trade there. Liquidity is what is at issue here. The bid/ask spread will simply be too wide to effectively day trade an in-the-money option. But, we need delta exposure! Since we are trading directionally, we need an option that moves as the underlying moves. The best maximization of liquidity vs. delta will most likely be an at-the-money (!50 delta) call or put depending on our desired direction. Now our last consideration, theta. Theta is time decay. If you trade an option will very little time left to expiration you run the risk the decay will cut into the extrinsic value of your option and although you may be right on a directional basis, you have no profits to show it. An option with 30-45 days to expiration will accomplish this without giving up liquidity and exposing yourself to too much vega risk. Read More

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