It was written on the walls that success is a process
No matter how hard I fall I know it is some progress
Notches of the ladder I climb, holdin a bottle of wine
So many paths to take, I’m followin mine
-Common

Yesterday, I wrote about Goldman Sachs lowering their expectations for Q3 GDP to 2.7%. This morning, the Advance GDP number was announced at 3.5%–higher than expectations and far higher than Goldman’s lowered target of 2.7%. This is the first of three GDP announcements. We’ll see preliminary GDP on November 22 and final GDP on December 22. I find it tough to think that an advance number of 3.5% can be lowered all the way down to 2.7%. Then again, don’t count Goldman out. Goldman is Goldman.

No matter where the final Q3 GDP number comes in, the announcement today is significant in that the economy grew in the 3rd quarter for the first time in just over a year. It was widely expected that there would be growth, and now the actual growth numbers will be analyzed and argued about on television.

There will be a myriad of economic releases in the next few weeks that will provide insight into what Q4 GDP will come in at. If Q4 GDP expectations need to be revised downward, there will be large gains by being short the right sectors.

Gross Domestic Product

Risk On, Risk Off

The higher than expected GDP announcement this morning spiked S&P futures and induced a selloff in the US Dollar. I have been referring to the “risk aversion trade.” The risk aversion trade is a risk off trade–when traders and investors run for cover. In the current market, I’d describe the risk off trade as being short the S&P, long the US dollar and long treasuries. Today’s market was the opposite of the risk aversion (risk off) trade. Traders scrambled to the risk on trade–long the S&P, oil, short treasuries, short US Dollar. When the risk on trade is on, the Volatility Index (VIX) trades lower. When the risk off trade is on, the VIX trades higher. From the intraday charts below, you can see that what the S&P lost yesterday, it gained back today. Conversely, what the Volatility Index (VIX) gained yesterday, it gave back today. Yesterday was risk off, today was risk on. You follow?

Volatility Index - 15 Minute

S&P 500 Index - 15 Minute

Phone Calls

Can a phone call change your view of the market? This one quite possibly could. I have long opined in these pages that there is more risk to this market than what it is priced for. Of late, I have written of a sudden spike in the dollar that no one is prepared for. After a phone call with a broker in Japan last night, I think it is best to be short select names in the weakest sectors rather than be short broader indices or sectors. Here is why. My broker in Japan alerted me to something very important: Japanese default swap spreads are at their widest in 6 months. Other sovereign default swaps have seen a significant widening as well. This is a sign of potential dollar weakness to come. If the dollar weakens, it will be tougher for the S&P index to sell off dramatically. It is for this reason that I am once again long some silver options (calls). If this widening of swap spreads is a sign–a tell in poker parlance–of dollar weakness to come, the best way to take advantage is to be long precious metals.

The Wall Street Beat

And there you have it, straight from the gut of Vinnie Vega of the Wall Street Beat, a subsidiary of Volatility News.

And the beat goes on.

What better equity to be short than Knight Capital Group, Inc. (NITE)?

The stock promotion scam is as old as the hills. It was just pulled off again in NITE. I wrote of it here.

Art is trading and trading is art and NITE is Trader Art.

Trader Art - NITE

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