TUESDAY, JULY 24, 2012
FED ACTION ALERT: COVER ALL LARGE CAP EQUITY INDEX AND ETF BASED SHORTS: Employ OTAPS Straddle (Effective Full Net Double Longs) At DIA ETF price equivalency basis $126.00
CHARTS: The S&P and 'Don't Fight The FED'
Following is a financial physics analysis and interpretation of The Federal Reserve's (THE FED's) current position on the equity market's price level, on how this analysis might interpret THE FED's actions going forward, and on how to position now for this possible (but not certain) FED action in this Presidential Election Year.
At the close of last Thursday's market, CNBC reported an unusual phenomena, a series of 'time-weighted programs' entering the market. The reporter was able to report the phenomena, but was unable to provide any real interpretation of it.
Now, consider the following analog from physics often utilized in financial physics:
"A market vector price support level bridge, which enables 'the passage of a heavy time-weighted week, or period of weeks, to cross it, without incurring 'bridge support level breakthrough'. And consider how THE FED can construct additionally 'cabling' support for the bridge during the periods of 'heavy-load traversing' within a dynamic system."
Current vector price level bridges have already been built by THE FED and are in place and in force... and most market technical analysts often refer to them as 'support.'
Within my model, which incorporates both economic calendar and political economic calendar cycles and variables, several significant bridges are the Active 2-Year Congressional Price Support Vector Bridge (2-year cycle, CCEV) the Active Annual Price Support Vector Bridge (NYSE:AEV), the Bi-Annual Price Support Vector Bridge (2QEV), and the Quarterly Price Support Vector Bridge (QEV). These active bridges can be readily determined, even to the day.
(For examples, see my SA article, "Chart: The S&P And Should I still Stay Away If I sold In May", and my current SA Instablog posts on the SPY and the DIA.)
THE FED also monitors the Monthly Price Support Vector Bridge (MEV). The MEV is also of particular significance to the active trader, within my model.
Also significant to the active trader is the active Weekly Price Support Vector and Bridge (WEV), the Daily Price Support Vector and Bridge (24HEV), and the Morning Block and Afternoon Block Price Support Vectors and Bridges (which are often impacted and sometimes even formed by The Asian Market's and The European Market's open, trading high, trading low, and closing price.
How the market 'carries various heavily-weighted weeks across' these support price bridges, at key times in the calendar, and how these 'bridges hold up under these 'loads' is of fundamental price support level interest, and its management, to THE FED.
THE FED is utilizing the wealth effect in its overall attempt to 'print, disperse, and distribute anti-deflationary paper value' and its hopefully stimulating effects across the economy.
In the administration of this goal, and this financial physics at work, maintaining certain general equity market price support level 'bridge heights' are very important to THE FED.
So, on occasion THE FED releases certain bridge 'cabling' announcements and acts (additional cable strengths), in support of certain price bridge levels during certain load-challenging periods; or, in the case of Tuesday afternoon, in moments of heavily-weighted two-week loads (see the AEV bridge) that appeared to be having 'trouble traversing the important current supporting bridge price level, and appeared to be breaking through' (see the MEV).
Breakthrough's can cascade to lower bridge levels, and further 'negatively pivoting and down-pressuring price momentum', which can be even further precarious to additional oncoming relative heavy load crossing periods...
THE FED faces one of these on oncoming relative heavy load periods in the significant Presidential Cycle Echovector (PCEV), again in September and October of this year (see the S&P500 5-Year Weekly OHLC Chart below).
As mentioned, last Thursday CNBC reported the unusual process the last hour of trading, that significant 'time-weighted programs' entered the market. The market then lost 3 percent in the following two trading sessions. And yesterday, Tuesday, the market challenged and revisited these low levels, sinking even further, and then positioned itself on a 'cliffhanger' going into the last hour of trading on the key monthly echovector bridge price support (MEV)...
Then, yesterday THE WSJ 'published' a major 'cable' by THE FED during the last 1/2 hour of regular market open trading, to help prop up the market.
THE FED surely is monitoring all relevant echovector price support bridges.
In its administrative market calculus this is surely one of the reasons why August 1 and September are so important to THE FED, and to its perceived resource pool of actions, what the market often refers to as THE FED'S 'effective powder'.
Many time-weighting price vector analyst hold that THE FED would rather not 'spend' its powder now, on the AEV (Annual EchoVector) and these forward 'heavy weighted' two weeks, on and into the market just yet 'in actions', especially if THE FED doesn't have to. This preference exists because of the big September PCEV heavy-weight THE FED faces, and the amount of powder they have left, and the decreasing effect of powders use. On the 'other hand,' THE FED will 'intervene' if it has to, and if the market becomes weak enough to 'cliff' the big problem, and it did yesterday...
THE FED is using the wealth-effect stimulus as part of its 'printing press' activities to keep things afloat, and THE FED would also like to stay in the 'talk it up' (or keep it from falling) modality, if it can, and if 'talk' works (cables) well enough in and of itself.
'Talk' is less expensive than actions.
THE FED would also prefer to continue trying to stimulate Congress to get into the 'stimulating ring' with it, with fiscal stimulus too.
'Acting' also runs contrary to the FEDS usual 'relative quietness and impartiality and inaction' leading into Presidential Elections, a position THE FED tried to (unsuccessfully) set up last year and earlier this year...
'Quiet,' however, is now long gone. And the market now seems on the precipice of FED action.
Below are charts of the SPX highlighting all these key Price Support Vector Bridges converging this week which THE FED is weighting. This week's active PCEV, Presidential Cycle Echovector bridge, is highlighted in white. The CCEV, Congressional Cycle Echovector bridge, is in yellow. The AEV, Annual Cycle Echovector bridge, is in red. The 2QEV,Bi-quarterly Cycle Echovector bridge, is in grey. And the QEV,Quarterly Cycle Echovector bridge, is in peach.
S&P500, SPX 5-YEAR DAILY OHLC
S&P500, SPX 30-MONTH WEEKLY OHLC
So, many analyst are firmly confronted this week with the selection between two powerful and competing Wall Street maxims: 'Sell In May And Go Away' (and staying away), or 'Don't Fight The FED.' Analysts are wrestling this week with which of these two maxims should 'rule the day', and with which of these two maxims should rule these next two weeks and next two months in the stock market. And they are also wrestling with how to approach positioning in the market, if they elect to do so.
(Staying nimble also seems to be another rule of the day...)
In this market environment, we suggest the employment of active and adjustable echovector bridge-based straddling position's to manage stock market exposure to changes in the general price levels. Setting straddles at these bridge levels on their relevant time-basis is an effective and opportune measure and advanced trade strategy.
Such an approach is particularly well-tailored to, and could prove very valuable, in engaging and effectively managing these market situations going forward into the Presidential elections this fall, and thereafter, regardless of what THE FED may or may not say or do in the meantime...
One way to employ such a straddle would be to utilize the SPY ETF and/or the DIA ETF. By setting up an advanced trade technology "On-Off-Though Vector Target Price Switch" at (EG.) $136 on the SPY or at $128.5 on the DIA, with appropriate dynamic triggers and stops included, such a straddle can be employed.
To perform the short side of the straddle, set a short trigger below either of these mentioned target price switch levels (EG. $136 on the SPY and/or at $128.5 on the DIA) pre-program as a 'repeating short trigger switch' at the trigger level on reverse down-tick action through the trigger price with stops set to activate on reverse uptick up-through action.
To perform the long side of the straddle, set a long trigger above either of these the target price switch levels ($136 on the SPY and/or at $128.5 on the DIA) pre-program as a 'repeating long trigger switch' at the trigger level on reverse uptick action through the trigger with stops set to activate on reverse down-tick down-through action.
Now may be a very good time to employ this general market straddle, and this more advanced trade technology and active position management methodology, especially when reviewing the chart of the S&P500 over the past 4 years within this current Presidential Cycle.