Wednesday, September 17, 2008

FOMC yesterday, the false 148 pt rise Tue, becomes a 449 point drop today

One of the characteristics of successful traders such as Wally, Dana, and Callie is they rarely trade on FOMC decision days. Unless they have a significant edge they can turn into profit, its usually wise to watch the reaction after the actual FOMC announcement since the following day will be the real move.

Ironically, that 90 min reaction on Tue was somewhat crippling personally but as luck would have it I wasn't near a computer otherwise my jaw would have dropped. Fortunately, today, the real reaction to the federal government taking a 79.9% stake in Dow component AIG in exchange for an $80 billion loan was negative and allowed me to sell my second 1/6 of a position. So essentially today's gains and yesterday's losses were netted out.

The T2108 indicator is now below 20, or 15.40. So at some point in the next three weeks, historically there will be some type of countertrend upmove. It could start tomorrow, or it could take 15 business days.

Rather than get semantic on how history plays out, I'm looking at both longs and shorts as flip trades. We're hoping to leg out of our current short before the market decides to pull the mother of all reversals should it occur.

Callie mentioned UT as the next likely bank to go poof. I thinking WM is probably next, but likely goes into conservatorship. In any case, we're both probably betting someone files for some type of help this weekend and the Federal Reserve will once again on a Sunday bail some other pathetic financial. But this time, the reaction on the following Monday could end up being a catalyst to cover one's shorts so we need to really to watch those charts in the final hour late Friday to possibly give a tell on whether I should be more proactive in locking profits.

YTD +5.11%

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