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Do The FOMC Cha Cha!


It's no surprise that Tuesday's FOMC Cha Cha Cha had a more wicked kick that usual given the break in confidence and the credit concerns.

Everybody in the party do the cha cha
Everybody broken da feel the cha cha
Hey muchacha give me your cha cha
Cha Cha (Chelo)

Quantitative analysis works wonders when all the assumptions are accurate and the variables selected are the right ones. This happens approximately once every million years.
-Jennifer Sue Gonzalez

While the Mambo Kings of Private Equity are soaking up the sun on the French Riviera, flipping to and fro to ensure an even tan, the Volatility Samba on Wall Street is burning the bejesus out of bulls and bears alike.

Never confuse your position with your best interest. Learn to love the sting----the sting of the stop-out. From my own experience and having shared war stories with some sharp traders over the years, I can tell you that one of the biggest reasons why traders get caught in the switches in wild swinging markets is because they are scenario-izing. They are locked into a theme. They are dancing a fox trot while the market is doing a jitterbug.

It's one thing to have a scenario, it's another to trade erupting volatility. It's one thing to have a scenario, it's another to have a roadmap. A scenario implies inflexibility and being married to a particular theme or outcome. For me, a roadmap sets up markers with which to anticipate and judge the market's zigs and zags: without such roadmaps all the tape action just rolls off a trader's back like water off a duck. A dead duck, many times. Without anticipatory litmus tests, there are no holding expectations: feet to the fire so to speak.

Given the great expectations that the GloBubble (Global Growth Bubble Paradigm) would keep world markets' calm, persistent, upward trajectory percolating into the hereafter, a keener expectation was perhaps to anticipate that after a long calm comes a storm. The question is whether this is a one hundred year storm like the Rich Man's Panic in 1907 which, you guessed it, was precipitated by a credit crunch.

One big difference between the market of one hundred years ago and our current market is that today's market is one that reacts at the margins: where designer derivatives, computerization, unhedged hedge funds, contangos of correlation, basket programs and point and click gunslingers, and financial algorithms amplified by leverage teeter like a six foot stack of billion-dollar chips at Stevie's joint. That's Wynn, not Cohen. But is there a difference? Just askin'.

All the above dance partners are poised and posed for the tinkering and tailoring, the huffing and puffing of A Plunge Protection Team, an FOMC, or whatever da Vinci-esque code is ginning up the rummy to do its handiwork.

That's the deal. No one really knows for sure how this credit swing is going to shake out.

So, it's no surprise that Tuesday's FOMC Cha Cha Cha had a more wicked kick that usual given the break in confidence and the credit concerns.

The best in show question is after three 90% down days going into Monday and ahead of Tuesday's FOMC meeting, and with the Tell of Tells, Goldman Sachs (GS), tagging a full 360 degree cycle down from its June 234 high at 177, does the two day snap-back indicate a meaningful low or do the extreme oversold readings some refer to signify a kick-off move and further downside to come.

Some say that based on on oscillators and stochastics or some black box system that this is the most oversold market in over a decade (other than the 9/11 decline). But I'm wondering why I never heard about why the market continued to plow higher in the face of persistent extreme overbought readings on the way up?

I will let the price and time determine the trend, as in my experience, most all indicators are descriptive rather than predictive.

Click here to enlarge.

The behavior when the Weekly Swing Chart turns up which will occur on trade this week above last week's high of 1484.30 S&P will tell us something important about the position of the market. Tuesday's high, coincidentally, was 1488.30. The market has a memory. The market has dance steps.

Click here to enlarge.

So, I'm wondering, who exactly is this Tape Town Arthur Murray that's responsible for teaching every FOMC a flawless cha-cha?
No positions in stocks mentioned.

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