For Now...

Honestly the last week has been exhausting, I think we have a really good start to trend #2. The minutes were the kicker, but I think Wall Street has had a pretty good idea that the F_E_D is trying to prepare market participants for a perhaps, more aggressive policy statement in which the punch bowl is taken away faster than people thought as of yesterday.

I posted quite a bit on this in last night's wrap, there has been some high profile F_E_D commentary days in front of the minutes release talking about not only taking away the punch bowl, but in fact the consequences the F_E_D will have to deal with after they do such as paying out $50 bn in interest to the big banks they already bailed out and how that is not likely to go over well with the public. Why have that discourse publicly with an event that is in the aftermath of QE being killed right before the minutes are released? There is a reason although it's not the reason the F_E_D is stating it as, it's Boiling the Frog.

The theory of "Boiling a frog", if you throw a frog in to a pot of boiling water it will jump out, but if you slowly turn up the heat you'll boil your frog. I'd say the F_E_D is taking this course, but I would not say that they have been slow in turning up the heat. You recall that I was already suspicious of this the day they announced QE3 because of the "Within the context of price stability" sentence and because of the talk of changing and adjusting purchases first according to inflation, then going from an outright calendar date to a much more subjective, "Economic based" model, as you saw in the minutes today the F_E_D made the economy sound, "Not so bad", even though we just printed our first negative GDP since 2009. The point being, I think they are starting to fear the end game/exit more than the current economy and for good reason.

I think the market has known this not only from the reaction I pointed out on September 13th to the very minute, I believe it was 2:26 p.m. when Bernie was asked the question about scaling back asset purchases in the context of inflation and the market didn't like it, but it's been developing for a while in a number of indicators, assets, currencies, dumb money sentiment, dumb money flows and the low volatility drift upward which is like a warm pool for dumb money that smart money can hand off shares to.

Don't underestimate what happened today, even if we rally 3% tomorrow, that's the second set of minutes that the F_E_D has been very candid, they have had a very different message than the F_O_M_C policy statement and the market has not reacted well to either and in the mean time, Bernie and Co. have been amping up the expectations dialogue. Don't think that the only time these people talk is at F_O_M_C meetings.

Taking the Punchbowl away exposes the entire house of cards built on QE since 2009, not on fundamentals, not on an improving economy, not even on an economy that was as good as it was when the market was much lower in 2005. This will be looked back on by those who are paying attention as the pivot.

Yesterday we had a Channel Buster in the S&P futures, remember Channel Busters "seem" to be bullish, but they are one of the best contrarian trades out there, it looked like this...

ES in a 5 hour Bollinger Band: "A" a tightening of the bands telling us a directional move is coming, "B" a directional move which turns out to be an upside channel buster and "C" the exact reaction I have been telling you about for years in understanding Channel busters. Too often we get caught up in what price is doing (and I blame Technical Analysis for that) and we don't pay enough attention to those things that the crowd missed.

If you were long ES yesterday you probably felt great last night, tonight, not so good.

So far from what i can see, even though price did respond and moved down, it looks like the initial shock was absorbed by the VIX, it's easier to hedge than to move around big positions in an unfriendly market environment, so while I do think volatility will continue to rise, I think the downside move today was not nearly as bad as it really is because a lot of the shock was absorbed by the VIX.

I can just tell you the tracking portfolio I use to keep track of positions which are mostly short, jumped by about +9% today, these are positions that have been under construction for a while, there are a few that still need to be filled out.

In any case,  my wife who has been away from home in Budapest since before Christmas for medical treatment, will be flying back in tomorrow and as a "temporary bachelor" I have some things that need desperate attention lest she jump right back on that plane! 

I feel great about today, I think this is the "start" of justification of our longer term views/positions, but I also know that feeling "Great" is not conducive to unbiased market analysis, so I'm going to step back for a bit, do some laundry and the likes, cool down and take a look at the market with fresh eyes.

I am not a bull or a bear, although I think the bear side is a lot more fun as it moves a lot faster and even the counter trend rallies are stronger, I do have  point of view based on hard data, but I always want to check and re-check and make sure that I'm not letting ego get involved in that analysis.

For all of you who made good money today on yesterday's SPY Put (and I really love that so many of you took this as your first options trade and did well) CONGRATULATIONS! I can only provide data and an opinion, it's you that has to do the hard part and you deserve all the credit for doing that.

For all of you who are looking to position yourselves, remember... PATIENCE-that's your biggest edge over Wall St. You don't have to be in the market all of the time, you can pick and chose your battles so use that to its full advantage. There's a bus every hour.

I'll be updating and looking at the market in a bit, if there's something I can add that I haven't already beaten in to the ground, I will.