Wednesday, August 29, 2007

Why a rally today?

Posted by TraderMark at 10:27 AM TweetThis
I must say I am confused why there is a rally this morning. I am taking the opportunity to add back some hedges I sold yesterday (the short ETFs)

On the bad side of the ledger you have.... everything

On the good side you have a "surprise rate cut".

That doesn't seem to be a very good equation or bullish case. And with each day people expect a surprise intra-meeting rate cut, I guess it becomes a little bit less of a surprise, doesn't it? The Fed is having a club gathering in Wyoming so people are looking at commentary Friday and perhaps the "surprise" cut then.

So let's follow the path ---> no cut ---> Fed will cut by 1/4 at next meeting Sept 18 --> Fed will cut 1/4 in a surprise move before Sept 18

What's next once that is priced into the market?

I guess the only 'surprise' at this point is a 50 basis point cut before Sept 18... now that would be a surprise. But also would indicate - HOLY SMOKE are things THAT bad? This the same Fed that was considering raising rates 30 days ago, so an about face of that proportion, while perhaps causing a snap back rally in the market, would indicate there is a lot of cockroaches that the Fed is finally waking up to.

I'm just not buying this rally, or any good reasons at least behind it.

Posted by TraderMark at 10:27 AM Comments (4) | Edit This Post | Create A New Post

4 comments:

msb said...

There is too much volatility in the market right now. The selling is done in earnest because of pervasive and increasing problems in the market and worries about those problems' affect on the economy in general.

Yesterday's sell-off had a good reason: consumer confidence falling, mostly a reaction to the market falling and all the talk everywhere about falling home prices, mortage failures, and so on.

Not a whole lot of reason for byuing yesterday or today, except perhaps bargain hunting after yesterday's precipitous drop at the end.

P.S. I've been following your posts and am enjoying them so far.

August 29, 2007 12:48 PM  
TraderMark said...

Yes, I don't think anything changed overnight to make things 'ok'. These problems are long term but I guess the feeling the Fed has a white horse and a 25 basis basis point cut this Friday or next week will be salvation :)

As you know, in the short run, it's all about emotion. Generally though when stock close on their lows of the day (like they did yesterday) it bodes poorly for the next morning, so this morning's action was surprising.

Anyhow remaining defensive. Thanks for your comment. Mark

August 29, 2007 1:46 PM  
msb said...

With these kinds of swings and very strong negative undercurrent, it's easy to imagine tomorrow being a profit-taking day. Hooray for extreme volatility - down hard on real news, pop on bargain-buying, sell for profits, repeat.

I agree with your assessment too that if the Fed were to actually cut rates, the real reaction is hard to predict. It might just add to the volatility as some see it as a blessing, others see it as damaging to the dollar and confidence in the Fed (bailing out speculative traders) and others see it as a sign of even more serious underlying problems. Hard to say.

August 29, 2007 2:53 PM  
TraderMark said...

Yes, other than for sentiment I'd be a lot heavier into the ETFs that short the financials, real estate, and Russell 2000. However, there will probably be some 'good feelings' from the Fed cut when it happens, however short lived - I guess applying a band aid to a broken arm works wonders :) So hence you have to be careful. It is not easy to be a short or a long really. The background fundamentals are deteriorating in certain sectors, the economy looks headed for some form of recession in next 12-24 months, but there are some great valuations in other spots and the global growth story remains intact, even with a slower USA.

I generally like volatility due to my trading nature, but these excessive 1.5%-2%+ moves are a bit much. And the swings seem to be so short lived.

August 29, 2007 3:12 PM  

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