Discussion in 'Trading' started by forex-forex, Oct 25, 2006.
Will the markets sell off after November 7, 2006? I'm thinking of going overboard with the DIA Puts.
No sitting on the fence.
I think this recent rally is one of those "buy on rumour, sell on news" type of thing. After the midterm elections I expect to see the DOW drop 500+ over a few weeks.
Again, sometimes I feel like I am the only guy on ET that has been trading for more then 12 months. But here it goes, let's step into a time machine and go back to 2004. Yeah, the good old days. We had ourselves a very strong rally in the fall. Now before you say big deal, I'll tell you what the big deal was. It was an election year!!!! Not just any election year, but an election that would be extremely controversial being that we were in the middle of a very unpopular war. And after the whole fiasco in 2000 about the election being so close, everyone figured we would see more of the same.
Well the market continued to rally strong going into the election. Again, all the leftists said it was the Bush administration propping the market up and we would sell off hard after the election. So everyone starting building their short position for what looked to be the mother of all shorts.
Well, election day came and everyone was right, it was very controversial yet again with a close vote with Ohio being the tiebreaker. And what happened after the election. Did we sell on the news? Nope, we took off like a rocket. Why? Because everyone wanted Bush to win? Nope. Because everyone was short!!!!! We took off straight up and never looked back. We sold off a little bit in Dec and then went sideways before going higher.
The bottom line is, everyone is keying in on these elections to get short. Not because they know who is going to win control of the House or Senate, but because it represents a catalyst after a huge runnup. The problem with the short trade is there is no edge there to be had. Everyone is keying in on the same trade. No one is going to want to get long after the elections. The right trade is usually the hardest one to make.
OK, after all this rambling, here is my prediction, I say we rally hard after the elections. The Dems win the house, the Reps keep the senate. We sell off in Dec into the end of the year and through the end of January. Just one man's opinion.
Historically, Nov and Dec have a bullish bias...
If your going to try to call a top on this election thing make sure you trade reduced size and a tight tight stop. I have seen a lot of very successful traders and CTA's blow out this past month for not following their risk parameters because of the psychology of not accepting a loss.
I wish the markets would be that obvious, Maverick. What happened in 2004 is irrelevant to what will happen this year. Maybe it will do the same thing, ie, rallye, or maybe not. The markets have this ability to have surprising moves. I also would differ on your assumptions that "everyone will be short". I read a lot on ET about the smart and dumb money, posted by people who, guess what, think they are the "smart" money and the others the "dumb" money.
I learned the hard way that making predictions in this business does not make me money, so no more predictions for me.
But, no doubt, all those predictions contests on ET are quite entertaining, so I am glad some still do it. But it is difficult to take them seriously as, most of the time, we have no clue on how the predictors actually trade their predictions.
Don't get me wrong, this prediction is just for fun. I don't trade this way. I just like to play the devil's advocate when the whole world is short. I'm a market neutral trader for the most part. Any directional bets I make are of the soft delta variety. Out of boredom, I feel compelled to jump on these threads and give what I believe to be very trivial information, nothing more. But everyone I talked to is short the market. I have not met or talked to one single trader who plans to get long on the elections. They maybe long now and might hold their position, but no one is going to initiate any longs. If you have met anyone who says they will be initiating new longs on election day, consider yourself an outlier.
I hear you, Maverick. I have already read some of your comments on other threads and you are not one of those "predictors". Again, predictions are good entertainment. I also trade pretty systematically and I just do what my systems tell me to do, regardless of elections, fed meetings, earnings, etc.. Most of the time, the events are unpredictable in the first place,ie, 9/11, or other disasters, or surprising good news.
Meanwhile, let's enjoy this nice ride and keep our eyes open.
Sorry for the Snip - just wanted to get to the meat.
I think this is a pretty good rally we are having, my issue is that it is too steep and too fast. Would have loved to see the rally in more of a solid fashion and hit 12k in the Dow by the end of the year. I guess we can't get what we want.
The election does play into the market, if only psychologically. Does it really make a difference economically - NO - but this country has become very polarized - so any change will create an EVENT. Hence the word Event.
This is my concern. The election is like an earning date when compared to volatility. We know the date, we just don't know the out-come (or the side effects). While the election does not directly impact the market - it does have a psychological effect - which may inadvertently affect the market (if only for a short burst).
So here's the rub - Volatility. As I mentioned to Mavrick a while back that we could see a good rally if the Vol remains in the 11-14 range, if it breaks down and starts flirting in the single digits then that sends some concerns into the market.
It would be nice to see (in conjunction with the rally) an increase of the volatility and skew going into an event like the elections, but we are not getting it. Which leads me the risk is to the downside â not up.
First in the single digits it shows NO FEAR. The put vs. call skew become FLAT. This is always a negative sign to the general market conditions. Combine that with the overly bullish paper flow and put selling, and the ISEE index moving higher, all of which indicates things COULD get ugly quickly. Not to mention the non-stop bulls on Bloomberg and CNBC (Dow 14k, 20k, 25k) â Note: I donât give much to stock cheerleading on TV â but it does adds fuel to the pull selling, covered call writing, and naked stock buying.
Now donât read into this that I am bearish or think the market is going to crash â however it is Teeing us up for a correction. I am not talking about a crash (market canât crash â or will have a hard time doing so with all the HALTS in trading - we couldnât even crash the market with planes flying into buildings), but a good pull back or correction is in the cards. Does that mean we are in a Bear or Bull market going forward? I donât know or care â since I am short-term position only trader. I am just concern with the short-term and my position.
Itâs getting too easy to make money over the last 3 months (get long, short calls, short puts, etc.) When it starts getting easy â almost too easy â and the dumb money is printing double digits then something is wrong (I can feel it in my gut). Time to pull the plug and flush them out. When? Good question.
So what is the catalyst to cause a pull back or correction? Could it be the election (even though it shouldnât) â could be. What I do know is that Vol is getting very cheap and if I see it get below 10 and the ISEE touch 200 I am going to get A$$ OUT short deltas (soft of course).
As of now - I have loaded up on some Gamma and Vega (downside this week). Flat deltas and Flat juice.
(Note: I am a short-term trader - so bullish or bearish out side of 60 days does not concern me).
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