Home > Lessons from the trading floor > The Eye of the Storm

The Eye of the Storm

September 30, 2008 Leave a comment Go to comments

The Eye of the Storm… Tuesday September 30. That’s how it felt like for most of the day today, a quiet day in between the 777 day drop we had yesterday and Thursday when the house takes up the rescue package bill vote. The bounce that we are had today started from the open, and the fact that it held for more than 1 hour was a nice indication that today was not going to be as bad as yesterday. Market seems to be content in doing a classic 50% retracement from yesterday’s close, but buyers started getting more aggressive after a story on FASB rules came out.


Today’s afternoon rally was influenced by talk that the SEC is looking into changing the FASB accounting rules on mark-to-market. Markets like the idea, hey why not? Keep changing the rules until something works. But in my opinion the cat is out of the hat, we know what this paper is NOT worth, eventually the markets adjust for risk one way or another, a rally just based on this won’t last. The VIX index at these levels 40 will continue to exaggerate any moves in either direction.


The other factor was the end of quarter concerns for Hedge Fund redemptions; did the funds have enough cash to meet demand? Or would they have to sell equities in order to raise cash? From the order flow we are seeing today, it seems to indicate they have prepared themselves for those redemptions.


Bottom line is we are still waiting on the package to be voted on in congress, the uncertainty is still with us until then. Even if we get the package, the market still has to work out all the details of what comes next. Will new accounting rules really change the dynamics of these markets? Only time will tell.


For intra-day traders we continue to have a series of historical events that keep us on our toes. None-the-less all the same rules apply: Discipline and Following a plan. Without out these two components a trader will get lost in all the news and volatility of these markets. Tomorrow is another day, and today was a sunny day on Wall Street, but isn’t that the case when you are in the eye of the storm?



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