Market Rap 28.October.2009

Meanwhile, back at the studio, there are several recording and motion picture projects in the works. All of my projects are fueled by trading profits, so let’s get to today’s scores.

The downward trend that has been in place this week continued today. The S&P 500 closed down 1.95% or 20.78 points at 1042.63. The Dow Jones Industrial Index closed off 1.21%, and the Nasdaq composite was off by 2.67%. In small cap land, the Russell 2000 was down 3.51%.

S&P 500 - Daily

Before the open this morning, Goldman Sachs lowered their preliminary Q3 GDP estimates to 2.7%. The consensus is for growth of 3.0%. The number will be announced tomorrow at 8:30 AM EST.

In my September 29th post, GDP, GDP and a Triple, I mentioned that if analysts have to lower their Q3 and Q4 GDP estimates, trouble will ensue. As you can see by the breakdown in the various indices, trouble is ensuing: Q3 GDP will be less than expected and Q4 GDP numbers will need to be ratcheted down significantly. Now that the movie theatre of the market is jam packed, it is not out of the realm of possibility that Q4 GDP will come in flat, or 0%–no growth. For this and many other reasons, I am positioned for the risk aversion trade–short various stocks and indices while long Treasuries. When the market realizes that GDP will be lower than what equities are priced for, the disconnect will cause a panic. Everyone cannot exit the theatre at once. The exits will be jammed.

The dollar found support at the 75 level and has rallied. As stated numerous times on these pages, a rally in the dollar will have vast ramifications for all other asset classes. If you’d rather not be short the S&P, you can be long the US Dollar Index. Whatever way you play it, the gains ahead will be magnanimous if you are positioned correctly. The fundamentals can only remain disconnected from the technicals for so long. The tipping point looms.

US Dollar Index - Daily Chart

The Volatility Index (VIX) has seen it’s largest percent gain since the March bottom–up +/- 35% from the lows of October 21. When the exits of the market become jammed, the VIX will trade higher.

Volatility Index (VIX) - Daily

The rally from the March lows has stretched the market to unsustainable levels. I continue to position myself to profit from the risk aversion trade, which is upon us. As my trading profits persist, my mission continues to permeate.

All the while, the beat goes on.

Mission