Monday, October 4, 2010

10/04/2010 More downside to come?

Good evening traders,

In response to the title of this post... I doubt it! Well at least not much more. We still have an open gap at 1120.50 and I wouldn't be surprised to see that get filled in the short term. We need to be vigilant of outside market factors when we trade. This could be the regulatory environment, overseas conflicts, anti-business legislation, and moves by the federal reserve. We are all familiar with the the first few but its the last one, the Fed, that remains a mystery to many traders.

While the Federal reserve has no authority to operate in the primary markets, (such buying $USD futures, or $SPY options), what they do during market hours can still have a huge effect. How huge? Consider that we recently learned one "fat fingered" trader at Wadell and Reed caused the "flash crash" with a mere $4.1 Billion in E-mini contracts. Now consider that the Federal Reserve will buy in at least $800 Million worth of bonds from the heaviest part of the yield curve tomorrow (9/30/2016 – 8/15/2020). Banks want to trade in their crappy yielding paper in favor of the higher yield in stocks. A good auction might push close to $2 billion worth of capital to primary dealers. Add broad index ETF buy-ins seen at the beginning of the quarter, and I believe big money will be chasing stocks higher.

Complacency is key here. Wait and watch the market 5 minutes following the close of the auction. I have seen this market run up EVERY POMO DAY this year. While I don't have the numbers in front of me, I know another blogger actually crunched them and that statement is statistically in my favor. We hear everyone say "This time is for real" "Sellers are in control" or my favorite "We are in wave 4 of a 1,3,5 ABC pattern". Just be vigilant. Its stupid to fight the Fed, the banksters, and all those who have a vested interest in the market going higher.

We have a decent Econ Calender this week. Culminating with the Non-farm payroll report. I'm excited to trade it. Make sure you are following the blog, and on Twitter, and that I'm following you too. Email or comment below and as always, Thanks for reading!


P.S. Here is the link for the Outright Treasury Operation Schedule

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