The flush is in operation, it appears. Virtually everything we own is tending lower so we will probably be increasing our hedges today, hedging FAS with FAZ and UPRO with SPXU, and QLD with QID.
FNM and FRE continue under attack. On thinking about it we remembered the Wyckoff panic model. A panic low will in all likelihood be tested after the automatic bounce. Fast footed traders (not us) buy the panic and take profits on the automatic bounce, and short it again. If you can do this successfully please call us because we want you to run some money for us.
We will probably be adding on to our FNM and FRE positions at some point here. We don’t recommend any reader doing it unless he likes juggling running chain saws.
At this point it is impossible to know if this is just an ordinary flush or is a serious test of the last Basing Point stop. We will be watching carefully ready to close the hedges and get back to uptrend, which is what should happen, but as we know trend changes can occur at any time, and there are a lot of shorts that got squeezed here and are aching to get even.
Also, remember the market is haunted this time of year.