marketspath

The "What IF" trade may be back in play!!

Posted by Gary Dean 08/23/11 @ 11:10 pm

"What" and "if" when used separately are two of the most non threatening words in the vocabulary. But when you combine the words together, they can haunt someone for the rest of their lives. (a mangled version from a line in "letters to Juliette") Yes, I saw it and no I pee standing up thank you. You now know who is the king of the castle in my house-and it isn't me when it comes to choosing movies to watch on a Friday night.

Anyway, that one line hit home for me. "What If" is such a major part of trading and what goes through a traders mind. As they take a position and deep down they know they are right, the little guy in their head starts throwing out the "what if" questions, which always happens to ANY trader. "What if" Ben doesn't announce QE3? "What IF" something blows up in Europe overnight? "What IF" Ben announces QE3 (shorts little guy in the head questions)

So the master planners have tried to pull a fast one on the bears today, with the we are weak, we can't go up and then reversed the tape after taking out some support lines. Yes they may have trapped some bears who are covering, but are the bulls really that strong?

We are at some of the most oversold conditions we have seen in the last 2 years, but yet the only way they can move the tape higher is by head fake trend line break reversals, to try and catch some shorts and make them cover. They also are using the uncertainty of is QE3 coming or not coming to try and move us higher today.

This sounds like a bull that is desperate to me. What ever happened to the bull that was buying because "stocks are cheap" or "the economic outlook is better than it is now" and the stock market will be higher in the coming months/years? Did that kind of bull market get thrown out the window when the Fed decided where the bottom should be for the stock market, instead of letting normal supply/demand make a bottom? I think it has!!

So now everyone is "hoping" Ben will decide the stock market should make a bottom here and launch QE3 on Friday. But "what if" he doesn't announce QE3? What will happen to the stock market that only knows how to go up when the Fed is back stopping any drops? Are we going to crash? Will the market find a bottom not to far below the current lows?

That is the "what if" fear factor that will be going through every bulls head if they decide to ramp this market higher into Friday. But if they ramp it too high, will it allow Ben to sit back and do nothing. because the markets have found their footing on their own? Personally, I do NOT believe Ben will do anything, as the dollar is just too low and the risk/reward for the Fed to launch another round of failed QE is NOT there. But that is just me and it is hard to assume anything with the Fed.

What I do know-investors/traders may be disappointed about the outcome-whether Ben launches QE3 or doesn't. It will NOT change the nightmare Europe is going through right now. And our banks stand to lose just as much as the banks in Europe if they fail. Good trading. G-