Fed is All Dressed Up with No Where to Go
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Posted 19 June 2012 - 11:05 PM
I think the Fed is all dressed up with no where to go. The dead fish on the hook are so lathered up about the Fed that despite the punk economy stocks are only 4% off their 2012 highs, bonds are near all time low yields, and mortgages are at their all time lows. Meanwhile sudden poor weather has popped grain prices, the Fed better tread carefully here, no need to get speculators worked up, best to let sleeping dogs lie.The addicted hooked market is oblivious to any of these considerations, and has priced in a big bout of Quantitative Easing to be announced Wednesday at 2:15 pm. Umh, there is one problem though- the only buying catalyst in the past month have been hopes of more QE [see The Central Banks Will Save You! -and other Hooks to Avoid]. What does the Fed do with all this? These rates are already badly impacting the FIRE industry and pension funds. Basically despite their propensity for mucky muck they can’t do much, not enough, or tokenism is my bet.I hate to trade FOMC meetings, but the risk-reward shorting into this one seems to good to pass up. This is a complete Wizard of Oz very fishy hook market: low volume, low VIX, algos back, oblivious to the risks. What shorts that were built up at the end of May (nothing like the October, 2011 low) , have been squeezed out. Fed action work best when shorts are lathered up, not the case now. There is a high McClellan Oscillator, a Fib retracement is in. I think the dead fish hooksters are going to be disappointed. I have a half a dozen blog write ups ready on energy plays, but am putting that on the back burner. I have gotten rid of all longs expect a small covered call trade on GTAT for 0.5% of capital.The bearish trades have been posted in comments, and I have bought the now low volatility puts in XLI July 34 at 29 cents and XLP July 34 at 26 cents for less than 0.2% of capital. I sold IWN July 77 calls too early at 1.23 and sold naked calls on LEN July 27 and TOL July 25 at slightly below Tuesday’s closing levels. I basically doubled up on SKF Tuesday for a 3% position. I shorted XLY for a 2% position at 44.13. I am not using SPY, QQQ, or material stocks for shorting because the market seems more bifurcated and I want to focus on more obvious aforementioned sectors on the short side.Lee Adler writes on big problems developing for the US Treasury. The commercial shorts on the 5 year came off above 0.70%, and I want to see what Friday looks like before putting this back on. I am short a modest position in Sept Eurodollars futures at 95.52, and still have 2% of capital in Swiss Francs forex , reduced profitably from 6%.
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