Thoughts to Ponder

Interesting last couple of days. It was psychologically brutal but I sold some hedges for a short on Friday. Other than that, I have not shorted anything additional in the market, yet. Tomorrow is a big day. The FED meeting and any statement concerning the quantitative easing that will expire next September will dictate alot of what I do. This is weird for me because usually macro stuff like that doesn't matter that much as for as timing my trades. I can't remember the last time I have traded on FED day but as I mentioned I have been looking for signs of a possible top. Signs are starting to appear. China is down 4 of the last 5 days, the dollar has reversed, the Baltic Dry Index was down five days (i think that is right) in a row or 25% coming into today (not sure what it did today). These are the things I have been following. Also, today for the first time in I don't know how long, we sold off into the close. Anyway, if the FED doesn't extend the QE I will be much more comfortable getting short. The street seems to assume they won't but there is smart money that thinks they will extend. This includes Bridgewater. Remember last week it was assumed that England wouldn't extend their QE program and they did last week. Normally I would say that is a for sure sign that the U.S. would follow suit but there are few key differences. For one, the Pound has been on a massive run so it was very convenient for the them to extend QE and kill their currency rally. We don't have nearly the same leeway.

Anyway, I will be shorting if they don't extend. It may not be the top but it will be close. I actually put it at 50/50 odds that the absolute top is in. Basically 800 before 1100 (I actually think lower than 800) but there should be some very good economic data still to come out in the next few weeks and if that was combined with more QE you could see another nice little run.

Want to make one comment about volume. The market is dead. Yes it is August and a large portion of Wall St. is on vacation but it is dead for even normal Augusts. This is what bear market bottoms look like. Not what we saw in March. There is no one left to sell and no one is interested in buying and the market just starts drifting up slowly picking up steam and slowly picking up volume. This is also what bear market rally tops looks like. As the bear market rally dies so does volume.

Anyway, I still stand by my next 60 days call from a couple of weeks ago that the top in the market will be by the end of September. It is possible we have another move higher but I would move those odds lower if there is no extension to the Fed QE.

It is also possible they push it to the next meeting. That would be very unlikely leaving the Treasury market in limbo that long.

One other side note. Dick Bove (who I personally can't stand) was out today saying that bank's earnings in the second half won't be getting any better. Besides the fact he is more of a trader and not a true analyst, my guess is he understands the sham job that is going on with reported earnings the last two quarters. The closer you get to the annual audit, the more difficult it is for banks to play games.