"Judging of how bearish everyone is and I don't know if you recall I
told you about co-workers buying apple at $600 and selling at a loss
well they just told me they are short the market by ETF's, I had to
ask which, it was the US. It makes sense considering that our Canadian
market is falling apart along with others but it seems the US market
was the last one to give. Sounds like LDI mark II."
This isn't a surprising update, as you know I suspect GS wanted to move the market and seemingly pretty quick to pick up shares on the cheap. As a member pointed out, the March long call by GS took a while before the market gave out...
This makes some sense, at the white arrows these were bouts of price strength-typically short lived and they were a real meat grinder for those chasing stocks, one day they were up and the longs chased them, the next day the longs were at a loss, the same goes for the shorts, one day they are chasing a move down, a day or two later and the market is bouncing, this is why you simply can't count on price action alone and many of the indicators that are derived from price action such as the very popular MACD (especially using it on a short term basis). We had an inside line via 3C as to what the big picture was so there was no chasing and we had the confidence of our convictions to hold and keep adding shorts in to price strength, it paid off.
One reason this time may be different is based on Papademos's comments about Greece making plans for a possible Euro exit. Whether Greece leaves on their own or the EU forces them out (such as the ECB cutting off funding to Greece), it's simple common sense that every nation in Europe, every bank, every trader would be considering contingency plans, THIS WAS NOT NEWS! The Papademos connection to Goldman Sachs is just too much to think this was coincidental. This was not the caretaker government speaking out, it was a "Has Been" Goldman hack that spoke out. Papademos, you aren't the PM anymore, WHY ARE YOU SPEAKING FOR GREECE? That's the question and the answer seems simple.
In conclusion, it seems to me that if this is as I suspect, a GS market manipulation so they can pick up shares on the cheap, it seems like a hasty one if they needed to get Papademos out there to hurry things along. This would also suggest to me this is less about the June F_O_M_C meeting and more about a market cycle which could lead to a ferocious upside move. As I showed you several weeks back, volatility, ATR and amplitude of the swings are much larger so an upside move (as I warned when I said, "it may move you emotionally and cause second guessing") could be very strong, in fact I have suspected the last move would be the strongest.
If this were more about an F_O_M_C accumulation period based on QE3, I would think the accumulation period would be MUCH larger, the rally off the October lows, we showed at the time, had an accumulation period that lasted from the beginning of August right through the October low. Those are my initial thoughts, obviously subject to change should the data suggest that, otherwise I'm in no mood to guess what the F_O_M_C "might" do in an election year and beyond that, how effective any such program would be. At best QE1/QE2 and to a much lesser extent, TWIST, didn't accomplish much in the economy, perhaps it would have been worse, but it seems to just have kicked the can down the road.
The Chinese were backing off from buying US treasuries (US debt) and the F_E_D needed to step in as the buyer of last resort, this was accomplished through the Permanent Open Market Operations (POMO). It lifted our market, but not because of fundamental valuations, it was because the Primary Dealer Investment banks had wads of cash from flipping treasuries to the F_E_D as the F_E_D can't participate in primary auctions, only the secondary market.
The problem in the US, which Bernie himself has raised numerous times is not something the F_E_D can fix, it's overspending in Washington and as such is a political problem, which means it's not likely to be solved as spending in Washington is synonymous with "Re-Election". So once again, there's a reasonable question of just how effective a new QE program would be any way given the increased instability around the world, but centered in Europe-an even more impossible situation.
I think it's pretty widely accepted that TWIST didn't live up to expectations and as such we have a reason to doubt whether future F_E_D easing will have the same effect as past easing-the balance sheet has changed dramatically, the macro-economic and Global economic environment has changed dramatically and there's the sensitivity toward F_E_D independence during an election year. Yes, QE kicked the market higher, but it also created an inflationary problem. Whatever the F_E_D thinks of inflation and their expectations for moderation, they consistently ignore the "Volatile" Food and Energy, the two items we use every day. So there are many complexities.
My strategy right now is to hold the shorts we've spent so much time putting together at great prices and hedge some of them with these leveraged long positions, which if all goes according to plan and based on what we know right now (not based on guesses about QE3-which has been speculated to be announced at nearly every F_O_M_C meeting and even on an emergency basis) the idea is the shorts will be in place as the larger position in case of a Black Swan event (the risk for a Black Swan is higher now than ever) and will be added to on price strength and 3C underlying weakness. The long positions act not only as a hedge in case of a QE announcement (which is the smallest reason for them), but also as an additional source of profits on a market move higher, they will then be sold (hopefully at a very nice profit) and filling out short positions will resume in preparation for the big picture trend in the market. As you know, I was thinking about this strategy yesterday, today just gave me the tactical means to effect it.
That' where we stand and those are my thoughts and rationale, the method of the madness. It seems like a good plan.
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