Meanwhile, back at the office, I continue to refuse to buy into the necessity of having twitter verification. I am confused enough as to whether I am a human or a machine. How could I possibly verify either scenario? Further, how am I to know there isn’t someone out there who could do a better job at being me? I relayed these thoughts to The Shrink earlier. He told me I need to come by and chat with him sooner rather than later. After that I talked by Amateur Radio with X and we recapped today’s action.

The S&P 500 Index closed lower by 27.23 points or 2.58%. Breadth was strongly skewed to the downside in what I will term an official day of distribution: sellers clearly overwhelmed buyers across the board. Credit spreads widened, the cost of risk insurance escalated. Overall it was a positive day if you are positioned as I am: Dollar, treasury, default swap and volatility strength coupled with equity/commodity weakness.

Yesterday, the only strength in the broader indices was the oil sector. Had crude not rallied–and not held it’s ground today–the broader indices would have seen further weakness. I spoke to newspaper Joey–my contact who trades big size in NYMEX energy futures. His take: the strength in crude won’t last. Smart money is short oil cars here in reasonable size.

With the sell off as strong as it was, it is important to see how the market reacts from here. Since March, every sell-off with any hint at distribution has been bought. Look at the lows of July 8th, August 17th and September 2nd. Buyers came in every time. If this time is different we will know very soon–perhaps in the next couple of trading days. In my September 12th Rap, I showed a chart of interest rates. The level I highlighted was broken today.

If you are a long only fund manager it is very easy to hedge your portfolio by being long treasuries. If you are heavily invested in private equity or if the majority of your assets are not liquid–such as shares of non public technology companies, you can hedge your downside by buying Treasuries. If you are a trader, there are plenty of ways to profit from the risk aversion scenario I have outlined.

If you’d like to contact me directly, drop me a line or a call at my office - The Tinker Factory.

I’ll be back soon, as the beat goes on.

$TNX Ten Year Rates

The cash S&P 500 index closed lower by 1% or -10.79 points. The highlighted line in the chart below is the 15 minutes between 2:15 and 2:30 EST; The time of the fed announcement.

S&P Futures - 15 Minute

Initially the market traded higher, but the move was faded by the smart money. By 2:45 EST the market was on it’s way lower and sold off until the final 15 minutes.

Rates were expected to remain on hold at 25 bps and as widely expected the fed did not move the funds rate. There has been talk of the fed starting to reign in some of their easy money stance, and it was confirmed that the spigot will be tightened a bit. MBS purchases by the NY Fed will be smaller and not as frequent.

From what I could tell, the S&P traded lower on strength in the dollar. I continue to think a move higher in the USD will catch the majority off guard. If this happens, I am positioned to benefit.

As the dollar gained strength, and the S&P traded lower and the $VIX strengthened. In credit spreads, high yield and investment grade both closed at their respective wides of the day.

Volatility Index - VIX - 15 Minute

The intensity of the selling picked up today on the NYSE. Down volume was just about 76% of the total up/down volume.

I’ll be back at 9:30 AM EST or 6:30 AM PST.

Wherever I am, I will be there. And the beat will go on.

The Shanghai Composite closed lower by 2.34% last evening. The short I outlined is playing out. Now that the trade is on, the only job left is to manage it - take profits and move stops lower.

Shanghai Composite Index - Daily

I am looking at the waves from my coastal office and they are calling my name. Instead of surfing price action, I’ll be surfing in the ocean. There will be no market rap today.

The anticipation of tomorrow’s fed announcement has gained momentum. The news will be less important than how players react to it.

Until then, the beat goes on.

A generally quiet session with some action, but not much. The S&P closed about flat at -1.41 or -.14%.

Overall, something seems not right with the market. Whatever that is may pass or it may lead to further volatility. As of now, there doesn’t seem to be an argument in town that can stop this thing. To that end, the S&P could potentially soar from here. All things are possible.

If the S&P does continue it’s ferocious march, it is VERY tough to know what to buy up here. Most of the breakouts I am seeing are concentrated in the stocks under $5 bin–the junk.

Gold seems to be on everyone’s radar. This is good. In a bull movement, it is best to have lots and lots of players interested in a market, betting on it as the next big thing. Good bull markets are born of enthusiastic participation. Whether the next 10% move in gold is to be up or down remains to be seen. Stay tuned. Spot gold closed the week at a high not seen since the week of March 17,2008 for a $1,004.86.

Treasuries were up slightly on the week. Treasury rates may find support here, but for my money, they must eventually head lower. That said, next week’s move in anyone’s call.

10 Year Rates

Watching Timothy Geithner.

He’s a decent poker player. He likely understands probabilities. He could use some help with bet sizing. He could use some work with sales. I’ve given him my opinion on a thing or two. He may make a decent cameo for the movie cc: theConsigliere et all