Stocks-Rider

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Like others, my portfolio benefited from the cuts. I had bought a few rate cut sensitive positions such as GS and XLE to make a quick profit as mentioned in my last post. Refusing to be a Pig, I have sold half off of the positions that moved higher and monitoring a trailing stop on others. I also placed trades on some stocks that I think would move nicely in the next few months such as AGE, DKS, SLAB, BX. AG Edwards, Dicks Sporting, Silicon Labs all have good charts, great price action and lot of support. In addition, these stocks stand out because the underlying fundamentals remain good. The only one that seems to be really expensive is Dicks Sporting but as I mentioned in my last post, it has a significant percentage of float that is short (17.53%). So we could take advantage of some good short squeeze in days to come. We already witnessed some of it in the last two days. But there is more squeeze left in the sucker. Blackstone is one rate cut sensitive stock that might benefit much longer than the housing stocks. While I believe there are still skeletons in housing companies' closets, Blackstone could benefit more directly and more cleanly from reduced rates in terms of leveraging equity to lap up more companies in days to come. That said, I am keeping a close eye because I am not sure when would that party get over. And that brings me to Mr Ben and the cuts

Some odd observations. First off, I am a tiny tiny creature as compared to the immense analytical prowess, intelligence, and sophistication of the intricately vast machinery at the disposal of federal reserve. Not to mention the horsepower of all the Governers' combined experiences. So it follows there has to be at least some logic behind the rate cut decision, and I don't want to sound I am questioning that. Anybody who does that is trying to show off limited knowledge unless they have the access to the same machinery and data that Ben has.

That said, here is my question - if the Fed thought that we are in such a dire need for a rate cut that made them slash 50 points, why did they wait till the FOMC meeting? The only logical explanation seems to be that from Fed's point of view, 50 points must not be that dire after all in the overall context and in the big scheme of things to come. And if so, I would reason that there may be more to come.

Secondly, isn't it odd that the evening before the fed announcements, E*Trade and Bank of America would come up with announcements (here and here) that could have been made days earlier or days after? It seems it was an obvious overture. Maybe a last ditch effort to sway Fed opinion? In fact, in days leading to FOMC a few other major institutions seem to be releasing bad news too that were in hiatus since end of August. They looked like setting a stage for Fed in a way that when the rate cuts happen, the upward swing of markets continue unabated at least for some time.

Finally will someone tell me if Ben just loves to slaughter the short traders as mercilessly as possible? That was a rhetorical question by the way. Remember the Thursday of August 16th when Fed announced the discount rates slash? That was timed just before the options expiration and just after one of the biggest drops of recent times. Obviously it was designed for maximum effect. The shorts were butchered. Yesterday there was an unusual number of shorts and VIX calls going into September expiration. Coincidentally, maximum effect would not have been 25 points. Maximum effect would be a cut deep and wide. Although I am in awe of Ben taking the bear by its horns (excuse the misplaced pun here) with great timing two consequtive times, the coincidences seem to be building up. Some experts believe it is normal and in the very nature of the rate cuts that they happen not only as a result of analysis of sophisticated data elements but also when the Markets are in deep red to deliver maximum effect. By the way, this also explains why the Market moved up 300 points instead of declining on fears from a 50 basis points. This whole phenomenon of Fed's powers to manipulate the markets may only exist at the beginning of a series of rate cuts though because more and more rate cuts just indicate the Fed is stretched to its limit and that may not be a good thing. My conclusion is it almost seems the Fed is telling us that it is okay to go with what I consider as the grand daddy of all assumptions - that the market is a leading indicator of the overall economy.

And finally if indeed the Fed wants us to believe the Market is a leading indicator, then isn't it at least mildly perverse to think that most of the data that Fed pores over may largely comprise of lagging indicators?

Believe it or not the above rant could translate into an anectodal yet logical strategy to trade. Given the above discussion, it may only seem logical to try to position your bets on the long side just before the FOMC meetings especially if they are close to options expiration days. No guarantees of course because the Fed could cut a rate in between, but this concept is still worth a try.

A funny side story but related to above. I was just chatting with a friend of mine about Ben's actions and he happens to have a fancy for astrology and markets. Pat came his response - "Ben is a fire sign after all. He is not going to sit quiet..he doesn't have patience and he will give a counter attack much sooner than average. (Apparently Ben is a Saggitarius and apparently saggitarius is a "fire" sign)." Then just out of curiosity I looked up Secretary Paulson. Guess what he is too - a fire sign.

Before I am dispatched to the dark pits of incredulity by the peanut gallery, as I said, this is just a funny story..nothing more to it. On the other hand, it always helps to be open minded to all ideas...and I mean ALL ideas.

New Trades
Tomorrow and day after, if the market shakes out some of the euphoria, I will enter some new positions and close some existing ones. Here is what I have on my radar.

Sell remaining XLE by putting a trailing stop. The reasons to buy this was mentioned in my last post. Those very reasons are now getting used up. Oil prices will go down in weeks to come due to seasonality in oil trading. Besides, the fact that Fed cut the rates deeply inspite of rising oil prices means they probably know something that I don't about oil prices.

Sell remaining GS by putting a trailing stop. For me, GS was a pure trade and given the duration of this contest, didn't make sense to hold it longer. I do thing it is a good long term investment outside of this contest.

Sell SDS by putting a trailing stop. I suffered losses on this one. But I expected it since it was a hedge trade to protect just in case the markets went south after the FOMC annoucement.

HOC: Holly corporation. Sitting and trying to form a weekly base around 65.5. Even one point up on a weekly basis would push it above the middle bollinger band on the weekly charts and that is a very good sign. I may look into buying it between 66 and 67 depending on daily and hourly price action.

CCL: Carnival Corporation. Beautiful chart patterns. It actually works really well with what I mentioned above oil prices eventually finding a ceiling and coming down.

There are couple of technology stocks I am looking at too and will post later in details.

I am going to look at how the markets shake out this week and then start placing orders at attractive entries. Finally, if you are interested in more aggressive style trading including options trading and shorts, then you may want to check out my blog site where I am more experimental.

Please note I have a full time job so I don't get to post in real time my trades. But I am hoping my posts give you some ideas to consider for your own trading.

Good luck
Krish