On to the market...
The Senate has passed a bill with overwhelming support, the word is the House Republicans are split in to camp Boehner (the Republican Speaker of the House) which supports the bill and camp Cantor (The House's #2 Republican behind Boehner) who opposes the deal.
It sounds like Republicans have given up fighting as they don't want to be blamed for a broad tax increase on most Americans as we go over the cliff.
The politics are always interesting, but not so much a concern for us. The Equity Index futures market is not open so we don't have a feel for what underlying trade looks like there, but the EUR'USD (as the FX markets are open) give a strong "risk on" (continuation of Monday's move up).
This of course implies a strong move in the market to the upside as the market is closely correlated with the pair.
Now, I have an 8:15 Dr.'s appointment so I should be back pre-market, but I wanted to say this- remember that trend 1 which is what I believe we just started, is the shorter trend; I fully expect it to be a sharp, fast move (it already has been) that most likely will turn to the downside and start trend 2 (down) much faster than we might think, this is because I believe the market has already priced in the successful resolution of the negotiations which are at this point, awaiting the House to vote on them tonight as the Sente already passed them.
The bottom line is this, be prepared, keep a sharp eye out, the Call positions (at least Friday's QQQ) are in good shape. Calls rather than long equity positions were used because of the expectation (through our analysis) that this first trend will be strong, but short lived and may indeed turn very fast. This is also why we built the less leveraged 2-3x short positions for trend 2, but still not so much leverage that we can't ride out trend 1 (which as I mentioned in one of my last posts, is hedged with the calls).
Again, I don't want to confuse anyone, I'm just saying if we do see a sharp move by tomorrow morning (and who knows what can happen overnight or with the House vote), be alert, don't just assume this is a new leg up.
We will of course monitor the underlying trade to judge as best we can, the health and how long any such move up might last which will also give us a chance to position for trend 2 if anyone would like to.
I also suspect that once we have an outcome (assuming we do get a House vote tonight that passes), we will see new data in underlying trade, almost a reset point for the short term and will have to pay close attention to that.
Should the House fail to pass the Senate Bill As Is, the market could see a sharp drop, but so far the FX trade seems to indicate the bill will pass.
That's about all I can say for now until we see what the House does and how the market reacts to it overnight, we have been looking for a strong sharp move, we saw that Monday, I wouldn't be surprised to see more added to that, but I do not expect this to be a new trend that holds for too long.
Just be alert, be on your toes. If trade is fast and underlying trade is changing quickly tomorrow, I will be slower on email responses as my first priority is to all members, otherwise I'll get to emails ASAP.
Happy New Year!
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