Always Be Ready

GualbertoGeneral CommentsLeave a Comment

As indicated by previous posts, yesterday was a great day. Sometimes you don’t know when days like that are coming around. Sometimes you can tell. On Thursday night, my roomates asked me to go out drinking, but I declined because I had a feeling something could happen to the market on Friday. I know that when I’m hungover I don’t trade as well, and I didn’t want to sacrifice the day for a few drinks with friends that I see all the time.

Well when I woke up Friday morning, and I saw Fannie and Freddie down another 50% in the pre-market, I knew staying in the night before would pay off. What led me to believe that Friday could be a great trading day? In fact, by Wednesday I was already licking my chops for Friday. Well first of all, there was a breakdown of the SPY below the March lows. That alone has created more volatility as big money battles to send price action one way or the other. Second, was the increased volatility in LEH, FNM, and FRE. You’re talking about 20% plus moves up and down intraday. There were various experts talking about these institutions being insolvent, leading to panic. That’s when I knew there was the possibility of a significant downmove going into the close on Friday.

The Fed stepped in and made comments regarding the GSE’s Friday afternoon that sent the market sharply higher. The increased volatility and that upmove definitely made my day much better going into the close. If the Fed didn’t step in with an announcement, we could have seen the markets close at the lows instead of a reversal. Either way is great for me.

Indymac, the largest independent mortgage provider, failed last night. They specialized in Alt-A, not subprime. This is pretty significant news, as the argument for the Bulls has been, “Everything is rosy except for subprime.” Add to that, the fact that the Fed has denied talking to Fannie or Freddie about opening the discount window, and we have a great Monday morning lineup already. This can add more uncertainty to the financials next week. We’ll see how the market reacts to it, but regardless, I know to get my rest this weekend because I know next week can be as crazy as this week. And as a trader, there’s nothing more that I can ask for.

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