By 7.00 a.m. yesterday the market had hit a 107 futures rise on the Dow, showing a strong upturn. 8950 is a strong resistance line and with the ongoing euphoria in this vastly overbought market may have acted as a trigger.
Two large triggers emerged before market opening yesterday:
1. 10 of the largest U.S. banks are going to repay 68 billion in bail out cash.
2. The Obama administration is dropping the plan to cap salaries at firms receiving government bailout money, which does leave them subject to limits on bonuses. We believe Wall Street, et al will now define salaries as a larger part of compensation. Doing this eased fears from Wall Street to insurance companies, and to all that have made large bonuses as a part of their pay.
The sad answer here is that without bonus or compensation of strength we would otherwise effectively lose our "money movers" to the private sector, making it harder to "create rules on."
What we are seeing in the market is abnormally good, and each time this occurs, there is a precipitous downfall. Think of the market as a balloon we let off to the sky. One balloon we fill with helium and leave a large hole. This balloon rises quickly, so fast in fact we may lose sight of it, only to have the helium dissipate and the fall of the balloon without any helium helps it lose all momentum and crash to the ground. The second balloon is the market under normal conditions, with normal "air," and no holes and it is released, floats around, rises, falls, and finally falls.
Both balloons are signs of the stock market, under a "bull run", or an abnormally "helium" based bull run.
Watching the market this week we've seen it harder and harder to make profits as the market can move 200 points in a day, bi-directionally, leaving traders frozen at their screens:)
Floydian Rule #356: NEVER trust an optimist.
At 7.00 a.m. yesterday we issued a pre-market alert for risk traders for a call. But......the market did not open higher, despite a huge futures, and did open down. Yet another sign of a market simply "waiting."
Level 3 trader MR said it well:
"Your lessons are sinking in, making my new trading experiences profitable.
Did well with the 430 put. 2.80 buy, up to 4.30 sell in 2 hours."
http://www.bloomberg.com/apps/news?pid=20601087&sid=aIaglylG2zio
And....:)
90% of economists predict the recession will end this year. About 74% expect the recession, which they define as starting in December 2007, and the longest since World War II, will end in the third quarter. 19% see the turn as happening in the final quarter of 2009, and 7% believe it will end in the first quarter of 2010.
I am often amused by this as I remember not long ago when Bush and McCain told us the economy was fundamentally strong, and even before that lovely Bubbles Greenspan (who helped cause this whole mess) and Bernanke were both saying that by "definition of recession" we were not in one.
Of course, by "definition" we now are. So take the talking head commentary and our economists collective bubble head thinking, and we'll wait and see.
For students of economics that want to understand how Obama is working, study the Nobel Prize Winner Paul Krugman and New York's Roubini. They have a pulse on the market.
Lots of traders want to "hear or read" how Floyd himself trades, and I have many videos online for your review that show my charts, and what I watch.
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I am so organized in my trading it’s anal. My desk looks like the desk in the video on the home page, and my desk at my home office identical. Both offices look the same.
My desk is clean and very organized to start the trading day.
I begin at 4.30 a.m. with a view of futures, and then an hour of exercise, and half an hour of meditation, and another look at futures, then breakfast.
The day has now begun. I answer emails and do general work in the early morning, pre market, noting that the majority of my trading time will be 9.30 a.m. to 11 a.m. and again from 2.30 p.m. to 4.15 p.m. (the OEX stays open 13 minutes longer than the market and it’s a great time for trading)
During the midday, when I am home, I go out to my backyard in Florida with my dog Lacey and read for a bit, a novel, not news. I take a long swim in the pool, and then take a shower, and prepare for afternoon trading.
Everything has an order and routine when I am trading. I do not allow other input.
My core rule is: never enter a trade until the situation meets my harshest criteria.
As I am trading I am watching the long term conditions, which I judge by downtrend/uptrend
A strict definition of an uptrend: higher lows
A strict definition of a downtrend: lower highs
I study this, along with my Dow projections, and I re-calculate the Dow (or the OEX) at 10.30 a.m. and again at about 1.45 P.M. EST, if market conditions are volatile.
And, all of that "long term thinking" is NEVER longer that 4 weeks out in projection, typically much less. I do not believe anyone can predict with any consistency or certainty the market moves themselves over any extended period
of time.
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