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Curious Action Into the FOMC

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An interesting twist into the tale of two tapes

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FOMC decision days are typically a tale of two tapes with 2:15 as a toggle.

Fair 'nuff, and there are indeed scenarios where the Fed could derail the upside trail, although we know from experience that policy makers are equipped with bones that know how to jaw. If practice makes perfect, they should be able to walk the tightrope between what stateside investors want to hear and what foreign holders of dollar-denominated assets need to hear. Or at least, that's their hope.

With my current posture (trading around the short side in tech), I initiated the meat of my exposure around NDX 1630 and twice covered snippets down a deuce (and
"let it back out" at resistance). I suppose my greatest concern right here, right now, is the parabolic frolic out of the opening gate reeks of agenda. Someone, somewhere, had something to do and you usually don't unleash those types of hounds unless your bark is backed up with bite.

Setting stops removes emotions and I continue to wave one naked arm (three appendages in the bear costume, or 75% conviction on the short side) with my stop 2% above my level of risk initiation. In hindsight, I could have covered another 25% under NDX 1600 and established a risk-free downside look but if wishes were knishes, I'd weigh 300 lbs.

Sometimes right, sometimes wrong, sometimes sweaty.

Some Random Thoughts:

  • You know what hasn't hit the tape yet? Lawsuits related to solicited orders on leveraged ETF's. They're out there and given social mood, they'll soon arrive at a news-wire near you!

  • Into the pop back towards NASDAQ 2000, as per the thought above, I nibbled back at some Powershares (QQQQ) puts, this time with a December expiration. Should we again leg lower, future sales will be in the October paper. Just sharing the process (which doesn't make it right!).

  • Why might it not be right? Taking a step back, the sideways action in tech is a bullish basing working off the overbought condition as a function of time rather than price. That, as much as anything else, is why risk management is so very important.

  • There has been massive issuance in the credit markets and spreads are starting to widen. The bulls maintain this is a healthy and natural progression through a structural lens so see both sides as you digest the data points.

  • Eyes of the World? Bank of America (BAC) feels like it wants to trade lower and Morgan Stanley (MS) trades particularly laggy. I'm not involved in either name at present I'm most certainly watching them as we edge ahead.

  • Why? Please make it stop.

  • Always early what? When I said in February that the S&P could hit 1000 by spring, it was the definition of "against the grain." I suppose it shouldn't be a shocker that, now that we're here, I'm fading it the other way. Does that mean a meaningful reversal won't arrive until next month?

  • As I alluded to above, the nosebleed ascent this morning smells like something's afoot at the Circle K...or something was leaked that will soon become common knowledge. Not that I'm a conspiracy theorist (other than The Invisible Hand, Princess Di, TWA flight 800 the 2003 blackout or the real story behind the kick-ball game at my 7th birthday), it's just that I've been watching tapes for almost 20 years and something smells sushi.

  • Societal acrimony? What societal acrimony?

  • I'm all about the market being a leading indicator and a discounting mechanism and have long subscribed to the notion that news is best at the top and worst at the bottom. I would be remiss, however, if I didn't continue to communicate that contrary to what the markets are telling us, "real life" is moving in the other direction.

  • Why do I keep pointing that out? Because I'm A.D.D. and I forgot I already said it?

  • Because I have a redundancy fetish?

  • Because it does not mean what I think it means?

  • Nope, no and no-er. Two reasons, actually. First, social mood and risk appetites shape financial markets and second, trading, in it's simplest form, is an attempt to capture the disconnect between perception and reality.

  • Which way will we fray into the end of the year? See both sides, my friends, see both sides.

  • Have you seen Hoofy & Boo's exclusive interview with Ben Bernanke?

  • Tick tock towards the 2:15 toggle. As always, I hope this finds you well.


R.P.

Position in ndx, s&p

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

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