Benny's Nutty Day in the Market

Attention, attention, alert, Benny says he sees inflation in commodity prices.....ok, everyone got that?

I'm not sure what's goofier about this morning, that Benny sees inflation (which, I suppose, is better than seeing dead people.....), or that traders are surprised that the Fed might hike interest rates. The Fed Funds Futures have been predicting a 25bp rate hike at the December 16 FOMC meeting for about, oh, 3-4 weeks. I know I've said this before, but is there anyone in the known universe that doesn't know that we have energy and commodity inflation?

Well, like I also said, it's not my job to question it, but to trade it. I'm going to see how the market plays this for the next little while, and see if there is a good trade. The pre-market futures are down more than I would have expected, so watch yesterday's lows, if the market starts blasting through those, it may be put city.

7:35 am MT: I sold the JNJ puts for a 10% gain from yesterday. I sold the UPS puts for an 8% gain since yesterday. I also stopped out of the GG calls for a 12% loss, and I stopped out of AEM calls for a 12% loss. Both stops were on a half-sized position, so pretty minimal losses.

7:55 am MT: I took a little profit on part of the AA call position. I sold a couple contracts for .51 cent profit, or 17% gain so far.

8:05 am MT: I am demonstrating an Iron Condor on SPY in my papermoney today. I don't normally do Iron Condors, but I need to demo this. So here it is: I sold the July 127 puts and bought the July 126 puts. I also sold the July 143 calls and bought the July 144 calls. The net credit on the IC was .35 cents, with .65 cents of risk. That translates to a 54% return on risk for 38 days of time.

8:20 am MT: I picked up a very small call position on RIMM. I also scaled out of just a little more of the AA calls, which is looking very strong.

8:35 am MT: I stopped out of ECA for a 5% loss, and I stopped out of SU for a 6% loss. Both positions were half-sizers, so once again, minimal losses. For whatever reason, it just doesn't smell right in Gold, Energy, or Commodities. I'm not liking a lot of the charts over there. I think that being heavily loaded up on calls is too risky right now. I only have two small positions left. I'm in account preservation mode this morning, and not in aggressive risk-taking mode. When Benny started yapping he put the whammy on things. Nothing he said is even remotely close to news, but traders are way too twitchy and jumpy about everything they see. It's like watching a quarterback who's been getting pounded all day in the pocket, and getting pummeled with sack after sack. When they drop back for a pass, they're thinking "oh no, here we go again", and they get that wide-eyed look in their eyes with those nervous and twitchy feet. In football they call it happy feet. To me it's like strapping on clown shoes and trying to cross the freeway during rush hour, it gets pretty goofy.

9:00 am MT: I nibbled a little on FCX calls. I think I'm ok with what I have now. I am looking up and down my watchlist for calls or puts, but I don't see a lot of exciting stuff. It may be that some of our selling today comes in the Energy and Commodity areas, but AA and FCX are rowing their own boats today, which I'm willing to play.

10:00 am MT: The market is quiet. If it stays quiet and doesn't sell off into the close, then the odds increase for a small bounce tomorrow. I will probably stay pretty light on the positions going into the close for that very reason. The market has a sense about it like it's clinging to the edge of a cliff by it's toenail. And if we get any more toenail fungus in the news then that thing is going to pop right off and the market is going to do a Wile E Coyote right into the canyon. If the market can overcome its frayed nerves, then maybe it will bounce a little.

10:10 am MT: I stopped out of FCX for a 14% loss on a 1/3 size position. I just don't see anything in Energy or Commodities catching any traction out there. I also locked and walked on the rest of AA, so the total trade was a 10.5% profit.

10:20 am MT: This is an alert that Energy and Commodity stocks may be done for a little while, perhaps several more days at the least. Traders are treating those sectors like hot potatoes today, so I'm all out of those areas, and I'm standing back and watching for now.

11:00 am MT: I sold the RIMM calls at breakeven. I really want to do this trade, but the nagging voice in my head is repeating over and over again the old saying amongst stock traders: "never trade a dull market." I can't shake it off, I think the risk is just not worth the reward right now. RIMM is a beautiful setup, but I think I will wait for the market to come to life before I take it again. For now, I'm flat the market on a flat market day.

12:00 pm MT: I picked up some half-sized put positions on DIA and SPY. I think that the market may decide to do a little Wile E Coyote right here. This is probably our intra-day tipping point on the market, we may sell down a bit from here.

1:45 pm MT: Now that RIMM will confirm a Bullish Engulfing after a Hammer yesterday, I went ahead and nibbled back in to a small call position. The overall action on the markets is mixed, just like it ended yesterday. I'm only keeping a few small positions because when the market gets dull, there's no sense in trying to make something out of nothing.

The Dow is hanging in space right now. The 3-day low is clearly defined at 12,190 - 12,200. So there's not much sense in ganging up on puts until we see a clear breach of those levels. Therefore, I decided to sell my DIA and SPY puts at breakeven just before the close. I may be premature, especially if we drop through the 12,190 area tomorrow, but I can always get back in if it looks good.

6:30 pm MT: Market Wrap: Benny came, he saw inflation, and he kicked bull tail. I really am trying to lay off a bit here, but his comment that policy makers will "strongly resist" any surge in inflation expectations really wants to get me jabbering away with some "critiquing." I think I will somehow resist saying anything about soaring Energy and Commodity prices and at the same time cutting rates by 225 bp from January through April. I'll also resist saying anything about lending to the long end of the yield curve 3-4 months too late, which is what the Fed should have been targeting all along, which is what I kept pounding the table for all throughout the past Winter. I'll also resist saying anything about traders being silly because today's news is about as non-news as news can get since the Fed Fund Futures have been predicting a rate hike towards the end of this year for about 3-4 weeks. And I'll resists saying.....oh....have I been typing out loud? Oopsy.....

The Dollar jumped pretty good off of Benny's comments, so "Rising Dollar Risk" will probably keep Energy, Gold, Steel, and other Commodity-based stocks under pressure for a couple of days. As a result, I'm not looking for anything over there for several more days at least, maybe longer.

The net net, at the end of all the gyrating, is that we had another Mixed Nuts day in the market. We are right at a key point on all the index charts. The Naz is clinging to horizontal support (2,930), and diagonal support (the 50dma). The SPX is holding a two-day low (1,350), and has tested short-term resistance (near the mid-point of the long candle three days ago, which was also the reaction low from the middle of last week around 1,370). The 1,350 - 1,370 range on the SPX is also the 50% and 38.2% (or 1/3 as I like to say) retracement levels of the previous IT Trend. The Dow is holding a three-day low (12,190 - 12,200), and has also tested short-term resistance (near the mid-point of the long candle three days ago, which was also the reaction low from the middle of last week around 12,340 - 12,370). If/when we get a clear break of the short term range, I will look to play the DIA, SPY, and the QQQQ's. That's the easiest setup I can see right now because of the many crosscurrents in other sectors that might need another day or two (or longer) to clear up. Watch for that range break, that's probably going to be your next trade cue. Whichever way the market breaks, look for a good run in that direction for 1-2 days, maybe even 3 days.

Here is the chart of the Naz with the 50dma
(click on image to enlarge)


Here is the chart of the SPX with the Fibs showing the 2-Day Range
(click on image to enlarge)


Here is the chart of the Dow showing the 3-Day Low
(click on image to enlarge)

One final note: I managed to catch a nice sore throat today, so I'm not doing any video or talking for a couple of days, especially so I can get through tomorrow. I'm hoping, like everyone does, that it blows over really quickly. If any of you are like me, you hate being sick.....