Random Walk Trading.com
Wednesday
March 11, 2015
1-855-RWT-0008
Prepared by the good people at Random Walk, LLC. (and Scott)
Great Morning!
Closing Prices From Yesterday
Today’s Number(s)
Yesterday
Three steps into hell.
The market gapped down about 180 points on the open as the Euro opened down 9/10 of $0.01. That is a big move by-the-way. The Euro sat there for a while, and so did the markets. At about 11:30 eastern time the Euro took another drop, and so did the market. We sat there until the last 30 minutes of the day when a sell order came in to sell $3 BILLION in stock on the close, which took SPX cash down another $5.
Below is a chart with the SPX and Euro/USD overlapped.
You can see how the market moved almost lock-step with the USD.
So in the end yesterday was just CRUDE OIL ā THE SEQUEL.
Prior to the US Dollar being so strong, crude oil was selling off. People didn’t know what to make of it, so they took all their chips off the table.
REMEMBER, the average age of a fund manager is 29. What the hell do they know? Yes, they went to Wharton or Northwestern’s Kellogg School of Business, so they know all sorts of fancy formulas for where things should theoretically be at IF the markets are stable. Guess, what? Nothing is stable right now, and they are missing a formula for testosterone.
In the end we saw how low crude oil was good for the economy ā something I said almost every day while we were falling. Eventually Yellen said the same thing and then the market liked low oil. I now say that a strong US Dollar is GREAT (not good) for the US economy and stock market. In a week or two the market will realize it, just like it did with oil.
So all we are going through with the Euro is an evaluation back to where things were 12-13 years ago where the Euro was at parity with the USD. In October or 2000 the Euro was at 0.822 to the US dollar. I am NOT a Harvard MBA who is about to argue with a Yale MBA about what āfair valueā of the US dollar to the Euro should be valued at. I am not smart enough, and I am a little too jaded. Having been in Euro, looked at their companies, their taxation structure, personal income, I don’t think the USD should be anything less than parity with a group of counties that can’t agree one anything. But that is me. So I am bullish on the US dollar (not that we are not bankrupt as a nation just like Greece ā we can just print more money).
TODAY
Yesterday I started the update in the āTodayā section with:
āFor ME, today is a slightly important day. ā
I was trying to get a feel for how the market reacted after Monday’s attempt to come back from Friday’s disaster. In all honesty I messed up. I missed looking at what is likely the more important variable ā the Fed.
Wednesday March 18th (next Wednesday) the Federal Reserve announces their rate decision. Now no one in their right mind thinks the Fed is going to do anything Wednesday. It would not only be a surprise to see a rate increase (or decrease), but Yellen would only do it if she bought 1,000 ATM puts in her personal account right before hand. The market would crash ā literally.
What people are expecting is forward looking language to get a better idea of when the Fed is expecting to raise rates. Specifically will the term āpatience be included or removed from the decision.
NUT SHELL
In a nut shell ā¦.Friday changed the world’s opinion on when the first rate hike would occur. What the majority of people thought was almost no chance of a rate hike until September, or later, now had about half of the people thinking June is the date. This spooked the heck out of the markets and a 300 point drop happened on Friday. On Monday we bounce and got about half of it back.
I was waiting to see how things would respond yesterday (Tuesday) but the Euro falling 1.5 cents screwed that up, so we fell 333 points. I missed it to some degree. This is why one is always hedged in some eay.
IN SHORT ā people are very nervous. Every MBA is moving their slide rule around to adjust evaluations for a 0.25% rate hike in June ā like that actually works? What we are facing is the possibility (though I doubt it will happen) of being the only country raising rates when the rest of the world is lowering rates, and the currency crash that results.
THIS WEEK
So until a week from now things are going to be CHAOTIC. Traders will be reading WAY TOO much into every economic number coming out trying to get insight into if June is the month Yellen raises rates. Most of last year we ignored all economic data and Fed meetings ā not this week.
WHAT WILL HAPPEN
The Fed most likely is not going to raise rates in June, but they do have to do it one day. They have created a HUGE mess trying to get rid of the BIG mess back in 2008. They painted themselves into the corner under the never ending misconception that they are bright enough to push buttons and pull levers with just the perfect touch to not trigger a bigger mess than what they tried to solve. Historically this has only happened (arguable) under Paul Volker’s reign.
WHEN
When the Fed gets back the middle class that evaporate ā raise rates. When the rest of the world is raising rates ā raise rates. When we see inflation of any kind ā raise rates. But don’t raise rates when a highly inaccurate and volatility employment number beats by 95,000 one week.
SO
I think the next 7-8 will be volatile until after the Fed eases people’s fears. The Euro will continue to fall as the market is convinced the Euro is going to par. There could be a delay in this is the ECB or US starts to intervene in sell US dollars. If we are here or lower on Wednesday before the Fed announcement I will get massively bullish before 2:00pm next Wednesday. The lower we go the more bullish I will get.
Bull markets don’t end because unemployment hit 5.6%. Markets crash when rates rise dramatically and/or valuations fall massively. This volatility is simply a result of inexperienced fund managers panicking because extraneous variables (oil, currencies, bonds) are all move at high speeds and they are confused. They are good ā real good fund managers ā but this is their first rodeo.
POT is held each Wednesday night at 7:00pm eastern.
THIS WEEK:
E-MINI OPTIONS FOR AFTER MARKET HOURS
Recap of the latest Random Walker so for,
and the latest NASDAQ risk-reversal
Contract the office at 1- 855 ā RWT ā 0008 for more details.
Too True To Be Funny
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Attorney Stuff
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