Yesterday and Today
Yesterday
It was a strange day, and one that caught me by surprise until I realized what was happening.
The market opened up 177 points and pretty much hung out there until 10:00am when the JOLTS numbers were released. The number came in at 430,000 which was the highest number since the year 2000. Most of the numbers that were messed up were in retail, healthcare and professional services.
I am being as objective as I can when I make the next statement. This is definitive PROOF that the current administration in stepping on the economy with legislation. Between Sarbanes-Oxley and Obamacare there is a lid on how many people will be hired.
Once this number came out the market declined and kept falling all day, which was initially a surprise. The Shanghai markets were up about 2% and the Nikkei were up about 8%. Given that everyone has been blaming China’s markets for weakness in our markets, it is a surprise that we are selling off when they are up? Not really.
There are two reasons we are volatile now, and they are not China.
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The Fed appears to be flying by the seat of their pants and without a map. It is NOT a coincidence that our markets were stuck in a range hovering around SPX 2100 until the last Fed meeting. Once the Fed met last the market fell that day, the day after, etc.
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The market markets are short volatility. This means that they are short gamma. As the market falls they get longer deltas and have to sell deltas, thus forcing the market down more. When the market bounces they begin to get short deltas and have to buy deltas to remain hedged. This selling at bottoms and buying at tops is the reason (at least some of it) for the exaggerated moves on the open.
But in all honesty China was selling off weeks before our markets sold off. It was NOT until the Fed minutes were released that we sold off. It was the contents of the minutes that scared many traders into thinking āthese people have no idea what they are doing, just like in 1929 and 2007ā. And that is a valid fear given the Fed’s very questionable rate of success in soft landings. If they were pilots they would need new landing gear and have their ELTs reset after every other landing. But as long as they walk away from the landing (with their job) they consider it a good flight, never checking to see if any passengers died.
But that is what makes this so much fun. If the Fed didn’t overestimate their ability to fine tune things the markets would be a much more boring playground. We would be left waiting for earnings beats/misses, and ā¦.well….that is about it.
TODAY
In a nut shell. More volatility and swings until AFTER the Fed next week.
We will get a break here and there, but the bigger the gap opening the more the volatility for the day.
Time is eroding many traders positions in a favorable way. We closed yesterday in the same spot we did the previous week ā roughly 1945 in the SPX. The gaps up and down are causing traders to move deltas, which move the market. But many of the short positions should expire this week and next.
Next week’s short positions will become a problem as time erodes. This makes gamma more sensitive and faster adjustments will be needed. Add to this problem the Fed meeting next week for the MOST IMPORTANT meeting since 2008, and we could see more swings for a while.
Don’t forget Friday is the anniversary of 9-11 Twin Towers which often has people concerned of more attacks. This can cause weakness as people get worried some a$$h073 will do something to make a historical point. You know…like the Benghazi mess that was a āprotest over a movieā that just so happened to coincide with 9-11.
A lot of people fly off the handle after seeing a movie and just so happen to have RPG’s, grenades, 14.5mm anti-aircraft machine guns, mortars, and truck-mounted artillery in their living room in case they want to display their displeasure for paying $15 for the ticket.
I will tell you something…… the last time I saw a movie at the theater it sucked so bad that I was certain someone was going to go home, get a few RPGs and their 50 caliber truck mounted gun and shoot the place up. I wanted to tip-toe out of the theater in the event there were mines placed. Perhaps we could read the Sec. Of State’s emails, whomever that was at the time, and get to the bottom of it? Ah….what difference does it make?
OPTION TRADERS
Expect more volatility in the markets even if the VIX declines. The VIX closed at 26.23, but that is half of what it was 2 weeks ago. It will be halved again, but not for a little while. But a nice 18% is reasonable once we get a couple days of positive gains to take away the fear of a second wave of selling ā of that comes.
We added the 3rd and 4th leg of the Random Walker spread.
If volatility continues I am going to possibly start a second Random Walker a week or two even further out in time (than the current one). How much fun, and what a great learning experience, will that be? We will also be getting on a new Black Ops just in case.
POT is held each Wednesday night at 7:00pm eastern.
Contract the office at 1- 855 ā RWT ā 0008 for more details.
Too True To Be Funny
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