The previous S&P 500 intermediate low was at 1415. We tempted that price to launch the week, but the temptation to go lower was throttled. Therefore we are really developing some weak foundation for the short term. However, closing below the 1415 means we are into a stabilizing phase. The bonds had a quiet Monday with most of the movement being within a half point throughout the day. We saw low volume; indicative of selling a buying pressures being at a minimal. The bonds did not rally as correspondingly as much as the S&P declines Tuesday. Therefore the asset allocation out of stocks into bonds was minimized prior to the FOMC meeting. The bonds did not rally as correspondingly as much as the S&P declines today. Therefore the asset allocation out of stocks into bonds was minimized.

The market environment seems to have taken its eyes from the focus of what action and what rhetoric the Fed utters. The overall muted response following the FOMC announcement denoted the environment influence is changing. Psychologically, approaching 1400 for the second day in a row and there were not rallies able to gain traction. It is very interesting to me to see how the same exact words the Fed uses in this environment fail to energize bonds. They use their reducing interest rates, suppressing long term rates for extended periods of time and a conviction that their policy is correct. All of this is a real yawn for bond traders and the reflecting price movements reveal that the buyers and sellers are unimpressed and perhaps even ignoring the fed anymore.

We will have a sticking rally sometime in the near futures that should be able to mount a continuing rally. The bonds probed 146, which means this is a potential short term bottoming process. However if we close below 146, it has fallen off the cliff. If we can mount a sustaining S&P rally, I think the bonds could be in for more downward pressure. We will see.

There was an S&P pattern recently whereby all rallies have aborted. This pattern needs to be adjusted and then converted to rallies being able to maintain their gains. We will see how the end of the month develops and keep the Frankenstorm in mind. It could create some trepidation and fear going into early next week. Friday probably represented the most blatant example of Fed intervention buying I’ve witnessed in a while. The resulting gains held bonds at their highs most of the afternoon paying absolutely no attention to any correlation with the stock market. They are on a buy agenda with one buyer. The massive computer used to manipulate these prices was turned on, firing on all cylinders with high horsepower.

 

2 Responses to Beware of the Frankenstorm: October 22 – 26

  1. Patrick says:

    I just read your story in Stock Market Wizards. I have to say one of the most moving parts of your start in trading was the early morning meeting where you you told your mother you lost big and she said “it’s okay if it takes you ten years to make back the money, just go out and do it.” She knew you could do it, what a great supportive parent, she really knew what you were able to do. You sure proved her right after you got back to trading and making that 1.4M.

    I appreciated the open comments about how you trade and your approach. You part in the book has to be one of the most insightful reads regarding the life of a trader that I have ever read, and I have read many.

    From someone that is still working and growing as a trader, thank you for sharing your background in the book.

  2. markdcook says:

    Patrick,

    Thank you so much for your encouraging comment!

    My mother’s faith and support is a huge reason why I succeeded back then and still am to this day.

    :) Yes I did prove her right. Because of her positive words, I knew in the back of my mind I could do it. Her support gave me faith when I had none.

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