September 19 - September 23

Monday’s overnight market was fractured. The news from Europe once again sent shock waves. However the day session today was actually constructive as we endeavored to ward off sellers. We also did not see extreme minus tick, which denotes institutional participation or lack thereof. Therefore we could not see our entry level triggered, as the fear factor did not create heavy dumping. The bonds are already pricing in the operation twist scenario whereby long term US treasuries are to be bought by the Fed. I wonder sometimes if the Fed truly enjoys creating bubbles as they have orchestrated some of the most violent potential scenarios over the last 11 years we have seen. The actions and words Wednesday by the Federal Reserve have all the ringing of pure financial panic. Bernanke has always been notorious for over extremes. Once again he has done that by overreacting. If Bernanke is indeed in a panic irrational emotional mode, he will defend this stock market as he has almost an infinite amount of money at his disposal. He has placed inflation as a nonentity forever and will inflate as much as he possibly can do with unfettered reins. The bond market now reminds me of the .com bubble. The interest rates are at all time lows done by an artificial mandate of an FOMC mandate that is without common sense. The most important aspect of successful trading is the willingness to learn about aberrated environments. It is extremely rare to experience a minus 1400 tick. The first 7 months of this year saw less than a handful registered. The last 7 weeks has seen dozens. The importance of this lies with the results of the market following the minus 1400 tick. These generally marks monumental pivot areas that result in dozens of S&P points upward. We experienced one Thursday, so put this in your financial diary. Our advisory trade was realized. It proved to be quite lucrative, profiting for 8 S&P points. The bonds moved higher once again in a manner that is totally out of control. My 35 years of trading has exposed me to many out of control situations. This is the most acute, extreme I can recall in the bonds. There should be a pullback of a magnitude of 20 to 25 bond points before years end. Last time we actually had 30 points. What a crazy world the Fed has created! Keep an eye out for the bonds closing below 139.  The period of time following Friday’s Fed announcement involved a cancer of fear that many have pronounced as fatal. The fact that we were able to mount a rally allayed some fears, but it will take more on the upside and a sustained maintenance program. The bonds hit 147 as the volcanic eruption spewed forth. The result after the eruption was a 2 ½ point pullback. Has this market blown and consumed all its energy? Two ingredients need to be seen. First, we need to have a market that makes lower lows for several consecutive days. Secondly, any rallies over the next three days cannot exceed 147.