Friday
Sept. 25, 2015
1-855-RWT-0008
Prepared by the good people at Random Walk, LLC. (and Scott)
Government Shutdown Possibility/Probability This Wednesday
READ: “WTF? Column” at bottom of this Newsletter.
Great Morning!
Closing Prices From Yesterday
Yesterday and Today
Yesterday
The market fell on the open for the 3rd day in a row. It seems that bad news is bad news and good news is news that is not great, so sell the market off. At the lows the E-minis were down over 30 with the Dow down close to -300 points.
Then, as often is the case, there was an end of the day last minute rally. The Dow closed down only 78 points after making back 200 from the bottom. It almost felt as if the market was going to go positive on the day as the Eminis were only down 3 – 4 points for a moment.
What caused the late day rally off the bottoms today is speculation. From a trader’s perspective it would appear that the intense selling we have had for the last month has run its course. So many people are looking for the lows of SPX 1867 to be retested, but there is no law in physics or the markets that makes this mandatory.
It was the market sitting at the lows for so long (and unable to slide any further down) that likely had people who were shot scared, and then they covered their short positions. Those who participated in the Random Walk Mini Class on “Legging” were repetitively shown examples where a resting place in the market is a decent place to assume a move in the other direction could occur.
The chart below illustrates the ledge the markets sat on for 45 minutes.
TODAY
Yesterday I made a two sided argument for the market moving higher and lower. I know this sounds like something a salesman selling brokerage accounts would say on TV to get people to open an account with him. I hate doing it, but there are just times when even the best traders have no idea what is going on.
Bearish
The point I made yesterday was that the market has been down below SPX 2000 for so long, and flirting with 1900 for much of it, that a person could make a very good argument for the market falling further. Typically markets that bounce off a bottom don’t do it half ass and then linger around at the scene of the crime for a month. There typically is a bounce and the bounce runs towards the old highs so fast that the general population misses out on the advances.
Add to this the confusion the Fed is bringing on the markets, falling oil prices, and the impending government shutdown and you would have to have balls of steal to get long this market.
Bullish
Much of the reason for the market selling off was the Fed – period. You are hearing about China’s markets selling off causing it. That is BU77S41T. You heard people talking about oil falling causing the selling. That too is Horse Hockey. A simple look at the SPX falling from 2100 to 1867 started last month the moment kept rates unchanged, and then the minutes were read. This to me indicates “cause and effect”. Looking back 3 weeks prior to see China’s markets falling, and then force the square peg into the round hole is just incompetence.
But now people are convinced the Fed is going to do a rate hike soon, and that they are not changing their mind. Many traders feel that the Fed is just verbally clumsy, but do know what they are doing. Being unable to articulate a coherent sentence doesn’t mean they are dumb. Look at Rain Man after all. (lol).
But what traders do know is that by the time you wait for all conditions to be perfect, the clouds clear, and uncertainty to evaporate it is too late to get long the market. Or as Baron Rothschild said, “buy when there is blood in the streets”.
Another compelling argument for a move higher is the extended volatility levels as measured by the VIX being near 25% for a couple of weeks.
MY OPINION
I have no idea. I am as confused as the next person. We are a lot oversold on a temporary basis, and when down 3 days in a row I tend to start believing the next day will be up. As such, in POT we came in long for the first day in 3 or 4 days. I will be hedging it off quickly on the open, though. Until about 1:30pm yesterday our deltas were primarily flat. After the bounce off the ledge started I sold out of long put spreads, left alone the short put spreads, and got a long delta risk reversal.
OPTION TRADERS
Still at 24% vol. Remember we are days away from the government shutdown. In an election year some politician will not want to risk taking blame for a government shutdown. Yet in an election year some republicans will want to be on record for doing all they can to shut down spending and Planned Parenthood, whose name is an oxymoron. If you planned things you would not be there.
So volatility will be moving all around, but will not completely collapse until something is settled with Wednesday night’s deadline.
A separate update. Next week’s class topic will be contingent on the government shutdown. I hope it happens and the markets fall like a rock going into it as it will be the best buying opportunity of the year. If quiet and uneventful we will talk about “Where I leg into verticals, risk reversals, etc”.
POT is held each Wednesday night at 7:00pm eastern.
Contract the office at 1- 855 – RWT – 0008 for more details.
Too True To Be Funny
Here is a good one.
I know some people remember my friend Ted from seminars years ago. His friend’s son was involved in an incident that is going viral on the internet despite YouTube taking the link down. I guess YouTube only like videos pirated from TV and adorable cats jumping up vertically when frightened.
There was an incident at a school in Huntington Beach, California where a small blind child was being bullied by a physically larger kid for no apparent reason. This cowardly bully didn’t have the gonads to pick on me or you. He picked on a handicap kid and was violently punching this defenseless kid.
The son of Ted’s friend jumped in to defend the blind kid from the bully, and knocked the A-hole bully out with one nice good-Samaritan blow. It was captured on video, like everything else these days is. I am sharing with you this video link to show that there are still some brave and good warmhearted people left on this planet.
Though a tad violent, but not anything you do see 100 times worse on TV..here is the link:
It would not be appropriate for RW to do anything for the kid who put himself at risk to defend the blind kid, but I am going to send him something myself.
Who knows….This happened in California – a place where innocent people go to jail and OJ and Bill Cosby get freed. A place where Nancy Pelosi is sane.
The bully might sue and win money, the kid defending the blind boy may be arrested, and the blind child thrown in jail (for obstruction of justice) for not telling the police what he saw.
At the risk of repetitiveness, I want to say I congratulate everyone for helping the blind boy out. My heart goes out to the blind child as you know this was not the first time he was bullied by insecure assholes. If I had a military medal I would give it to the kid defending the blind child. Instead I amgetting his address and sending him something.
As for the bully …be grateful you don’t live in Chicago. Not only would you be charged with assault and a “hate crime”, but you would never live that incident down in my neighborhood.
Enjoy the day and the weekend. There are still good people around.
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Attorney Stuff
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