Tuesday, August 07, 2007

The Fed Roller Coaster

The usual wild ride following the FOMC announcement not to do anything. Clueless does a fine job of explaining the finer points of this typical swing pattern. It's amazing to me that each time this happens the media and various market types all appear surprised. Imagine the morning newspaper arriving with the headlines - "Nothing New, same old stuff as yesterday" and the market reacting with 100 point swings - you would be amused and otherwise hard pressed to explain what was going on. But there it is, with great regularity, the product of massive program trading, gaming by the generals and panic/greed of the uninitiated.
Another wide range day for the Qs (blame or thank the Fed), closing above the 50 DSMA, and with a touch of the 3/7 DSMA cross -my long signal. With 11 days to expiration I bought Qs, covered 50% with QIDs, rode them up for . 30 and sold the near 47s to lock in 1.5%. If we get continued strength tomorrow, I'll try the same thing with the 48s as my target. I prefer to wait until 2 weeks before expiration prior to putting on these trades as the theta is typically minimal for the first 2 weeks after the prior expiration, relative to the risk.
The VIX has retraced through the 10 DSMA and now looks poise to hit the 20. The MACD histogram is below the zero line and the 5/20 cross is heading down which suggests a solid move up in the markets for a few days. MAYBE. Buckle up.

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