This is a hard market to read, whether we get a taper or not may not be what the market really cares about, the size and pace of the taper seems to be more likely to be the subject and ANY guidance on rate hikes which I think the F_E_D will try to defer.
If the F_E_D announces a taper (F_O_M_C really) the market seems prepared for it with more taper in treasury purchases than MBS at first
so there's going to be a whisper number on the street in which a taper could be announced and not as bad as the whisper number where the market takes this as a positive despite the taper being announced- a lot like earnings whisper numbers.
I suspect from what I see today (and there's no smoking gun, I really think the market doesn't know what to expect) I THINK AN UPSIDE INITIAL KNEE JERK REACTION IS LIKELY.
HOWEVER, REMEMBER THAT AS I ALWAYS WARN, KNEE-JERK REACTIONS ARE ALMOST ALWAYS WRONG WHEN IT COMES TO THE F_E_D, I ALWAYS WARN OF THIS.
The easiest way to sum up my current feelings (which I'll not be closing any positions, nor opening new ones unless I see something mind-blowing really soon) is knee jerk effect takes us to the FRP concept and I'll show you some reasons beyond the FRP video / concept (the concept being the most important) in other assets.
However if we split the market response in to knee jerk and correction of the knee jerk, then these two charts may best exemplify the market's reaction.
Intraday the SPY Arbitrage is on again, perhaps there is a known element or perhaps there's just a planned reaction despite what the F_E_D says and again that's the FRP concept.
CONTEXT -77 points, amazingly large disparity, this being representative of the correction after the knee jerk, after stocks like FRP make a head fake breakout high that is easily shorted in to.
What else suggests Wall St. may be preparing for an initial positive knee-jerk? Currencies.
The $AUD (FXA) vs the SPX, is seeing strength, so is the Euro and the $USD looks like a positive intraday divergence is taking over, the Yen doesn't look bad, but it looks stalled so if it stays where it is and the AUD, EUR and USD all move up, the carry pairs will all pressure the market higher, although they are truly dead, they can move the market for a day and in this case if they are being set up, then more.
As far as some examples along the FRP concept of "Make the breakout high, get retail to chase and short in to the breakout high / head fake", which is the concept I tried to pass on in the FRP video, I told you there are a lot of stocks ALMOST there, but not quite, this is the best shorting position we've ever seen and have always had good luck so long as the signals are there. Here are some examples.
XLF intraday isn't looking great here, I'd almost short it or put it out there, but more importantly is this...
XLF 30 min negative, this is where the probabilities are, but XLF is not a FRP style stock that is close to a breakout at the last highs so it's not showing the same signals as we see below.
NFLX 3 min positive is showing a different signal, this looks like the knee-jerk effect up.
Of course the longer term 30 min is distribution, but like FRP, NFLX only has a little way to go to a break out high that retail will chase that smart money can short in to heavily.
FAZ 15 min (3x short Financials) would be best to make a double bottom "W" and a head fake move below that and buy there (short financials), again, it would need an initial positive market reaction to get there, the FRP effect in reverse.
FAZ hourly? Do I want to be long or short FAZ in the Core positions? Long of course, but the entry is even better a bit below the last low.
PCLN is so close to that breakout, but it won't get there without the knee jerk up reaction, after it does, it becomes a high probability head fake and this is why.
Daily PCLN massive distribution, it's the head fake move that is the reason, it's what allows Wall St. the volume they need.
Now in addition we have a debt ceiling and budget fight coming up too, the market doesn't like that so beyond the tapering and initial knee jerk, things look good for the market to fall apart, we are really talking about tactical vs strategic (short term vs long term).
As for the averages and other stocks, VIX futures saw bidding, but that's normal, remember the 2-4 hour leading positives, that's where I want to be on core positions, any move down on a knee jerk is 98% going to be a useful head fake.
DIA 60 min, where do I want to be on core positions? Short.
IWM 2 min, doesn't look great as of the capture, but not horrible.
However the IWM hourly is nasty, this is where I want to be core short, but if a knee jerk can take us higher, it's a better entry, if not then established core short positions will do well and they can be added to on counter trend moves.
QQQ 2 min looks like distribution in to strength, what would be likely on a knee jerk higher? The same.
SPY 1 min as of the time of the captures was the only one positive intraday, however...
Look at the distribution in to higher prices, this is the point of a head fake move, except it generates volume which Wall St. needs in the size they trade.
I don't know because the F_O_M_C may surprise, but my guess is Wall St. knows the taper is coming and it's not good no matter what, but they need bag holders so even an engineered rally like SPY Arb and carry currencies look today, will benefit their short position, they may hate what the F_O_M_C says, but still NEED to move PCLN and other stocks like it above the breakout area to get retail to hold the bag.
Some stocks that just look horrible, that are core shorts.
GS 60 min on the bounce and look at the 3C divergence, but yet again, it's only a hair away from a breakout move that
retail will chase, that gives Wall St. the ability to sell to that demand and selling short is selling.
GOOG which I closed as a short because I saw the counter trend move coming, but will add back, I'm not sure, but maybe a new regional high will give me the opportunity.
JPM 4 hour, a regional high above the congestion of the right shoulder is enough to get retail to chase and make JPM a great add to.
*I WILL SAY THIS IS MORE GUT INSTINCT THAN HARD, OBJECTIVE DATA ALTHOUGH THERE IS SOME IN THERE...
THIS IS, "THINKING LIKE A CROOK", IF I COULD CONTROL THE SHORT TERM OF THE MARKET WHAT WOULD I DO AND THE FRP EXAMPLE IS WHAT I'D DO.
When I look at how close a lot of these major stocks are to a head fake move that I'd want to short, I don't think I'd let the market determine the reaction to the F_O_M_C no matter what it was, I'd spin it, I'd support the arbitrage and cacarry trades and make the short term move I want, HAPPEN.
When you are talking about trillions of dollars, possibly years of secular bear markets, what does a week or tow change? NOTHING, but it gives you huge advantage.
***I'LL KEEP LOOKING RIGHT UP TO THE F_O_M_C, IF I SEE SOMETHING DIFFERENT, I'LL GET IT OUT RIGHT AWAY, BUT THINKING LIKE A CROOK, THIS IS WHAT I'D DO.
No comments:
Post a Comment