Best of the Week
Most Popular
1.Putin’s World: Why Russia’s Showdown with the West Will Worsen - John_Mauldin
2. Stocks Bull Market Grinds Bears into Dust, Is Santa Rally Sustainable? - Nadeem_Walayat
3. Gold and Silver 2015 Trend Forecasts, Prices to Go BOOM - Austin_Galt
4.Gold Price Golden Bottom? - Toby_Connor
5.Gold Price and Miners Soar on Huge Volume - P_Radomski_CFA
6.Stock Market and the Jaws of Life or Death? - Rambus_Chartology
7.Gold Price 2015 - EWI
8.Manipulated Stock Market Short Squeezes to Another All Time High - The China Syndrome - Nadeem_Walayat
9.Gold, Silver, Crude and S&P Ending Wedge Patterns - DeviantInvestor
10.Is the Gold And Silver Golden Rule Broken? - Michael_Noonan
Last 5 days
Why It's Way Too Early to Count Out Putin - and Russia - 22nd Dec 14
Stock Market At Minor Top - 22nd Dec 14
UK Christmas Sales 2014 High Street Start Dates List - 22nd Dec 14
Ruble Takedown Exposes Cracks in Putin’s Defense - 20th Dec 14
Oil Drilling Our Way Into Oblivion - 20th Dec 14
Stocks Bull Market Resumes - 20th Dec 14
Gold And Silver Nothing Is Ever As It Seems And No Respite For PMs - 20th Dec 14
What Are Technical Indicators Saying About the Stock Market? - 20th Dec 14
Here’s How You Can Still Make 27% With Apple Even if You Buy Now - 20th Dec 14
Gold Stocks to Shine in 2015 - 19th Dec 14
Why Alibaba Stock Shares Are a Screaming Buy - 19th Dec 14
China, Dollar, Japan, Europe Burning Questions for 2015 - 19th Dec 14
U.S. Economy is in a Sweet Spot! - 19th Dec 14
US Dollar and the Gold Fairy Tale - 19th Dec 14
Show Me The Money (Flow)! Tracking Money-Flow Through Value Shifts In Stock Markets - 19th Dec 14
The Commodities Market Is Not Dying, It’s Just Hibernating - 19th Dec 14
The Price Of Gold And The Art Of War - 18th Dec 14
Euro Succumbs to ECB QE Expectations and FOMC - 18th Dec 14
John Williams: A Downhill Run for the U.S. Dollar in 2015 - 18th Dec 14
Outrage at Taliban Islamic Fundamentalists Massacre of 132 Pakistani School Children in the Name of God - 18th Dec 14
How Inflation Changes Retirement Benefit Choices - 17th Dec 14
The Real Reason It's Tough to Beat the Stock Market - 17th Dec 14
Russian Currency Crisis and Debt Defaults Could Create Contagion in West - 17th Dec 14
How to Profit From Russia's Stock Market Crash - 17th Dec 14
Russia Crisis - If You Put Your Money in the Bank Will You Get it Back? - 17th Dec 14
Crude Oil Price Crash, U.S. Employment and Economic Growth - 17th Dec 14
Opposing Forces At Play In Gold and Silver Precious Metals Complex - 17th Dec 14
Wall Street Will Always Find An Excuse For Not Raising U.S. Interest Rates - 17th Dec 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Dramatic Stock Market Selloff

QE2 Stock Market Warning, What if Nothing Happens?

Stock-Markets / Stock Markets 2010 Nov 03, 2010 - 11:40 AM GMT

By: Bob_Clark

Stock-Markets

Best Financial Markets Analysis ArticleWhat if nothing happens?
 
This is the most anticipated monetary event in a long time. Combine it with a big change in the political landscape and we have the potential for a blockbuster move, but which way and how  far.


There have been a lot of calls made in both directions, but what if nothing happens? What if the news comes out and over the next few weeks we go nowhere?

The option market is saying that it is a possibility.
 
The markets are at extremes and the public is clearly back in a buying mood and are loading up on the long side.  The markets have gone nowhere in weeks as the public piles in and the Fat Boys sell to them. The following two charts clearly show a strong bully bias among the small traders and investors. It has been my experience that the poorly run pension and hedge funds tend to be in the same camp as the public.  Everybody knows that the public never wins when they buy at these extreme prices and sentiment readings. 
 
 
 
A Lot of bull 
We are at AAII sentiment levels that have been seen at tops ever since we made the high back in 2007. 

The investment letter writing Gurus are leaning toward the bull side as well. As you see in the chart below, they are not as bullish as they were in April but they are leaning more to the bull camp and there are not many bears around.

We have gone nowhere in two weeks, indicating someone is selling here and the sentiment charts say it isn't the public.
 
 
 
Seems like a slam dunk short, but wait

Look at what seems to be happening in the lower chart. The public seems to be hedging their high risk, long positions.  Somebody is buying a large amount of put options, which can be insurance against a decline in their stock price.  The public usually do not sell naked put options.  They buy them.
 
Notice something different about this chart?  We are approaching (we are not at an extreme) levels that are usually seen at market bottoms, not tops.  The put/call ratio shows an imbalance of put buying.  We have to ask who is buying all the puts here.  This is very unusual at a market top.  You will notice that the green line usually is high at bottoms and low at tops, it is just a tool and doesn't always work, but it is saying pay attention, things are not as they seem. 
 

 

More bull
We know that the government and the Federal reserve have a lot invested in this announcement and they don't want to see a big "sell the news" drop right after the data release.  In fact, I am guessing there is a deal with the fat boys to keep the markets up for awhile afterward, to help "sell the idea" that what they are doing is market friendly and a good thing for the economy.
 
The cyclical model calls for a trading cycle low right now as well.  So everything points to higher prices. 
 
Coincidence? 
It is strange how just when the Fat Boys need the public and the funds to buy puts where they don't normally buy them (which is on the highs, like now). There they are, right on time, creating larger than normal demand. Most unusual.
 
Maybe the public has it right this time, maybe buying put options is a brilliant insurance plan. 
Maybe the public have finally fooled the Fat Boys.  Then again, maybe not.
 
Summing up
The strange option imbalance just ahead of the Fed meeting may be giving the following hints.
Don't expect a huge "sell the news" drop.
Don't expect a huge ramp up either.  If they are puts for November (and I suspect that would be the public's choice), they expire on the third Friday of the month, which is the 19th.  That short a duration means there is not much meat on them (time premium), so if the FBs are short stock, there is not a lot of protection against higher prices.

Expect a rally that lasts a couple of weeks but doesn't go too far, followed by a sell off back down into this area as the puts reach expiry.
 
This way, after selling a lot of put options, the fat boys can take prices up for a while and still make money. At the same time they will fulfill any obligations they have to support the market after the big Wednesday event, keeping the government and the Fed happy.

Trading using conventional technical indicators  doesn't work, all you get is random results. The Fat Boys use them as traps.  Please take my course or get my videos and learn the ways of the Fat Boys.  If you are not with them, you are a victim. 

Bob Clark is a professional trader with over twenty years experience, he also provides real time online trading instruction, publishes a daily email trading advisory and maintains a web blog at www.winningtradingtactics.blogspot.com  his email is linesbot@gmail.com.

© 2010 Copyright Bob Clark - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014