From Cabot Options Trader
The Week in Review
For the third week in four, the markets finished down. Again amidst great volatility, the S&P 500 finished lower by 1%, the Dow lost 1.17% and the Nasdaq led the losses down 1.32%.
For the bulls, there should be some fear. Once again Tuesday and Wednesday saw 1% down days. Yet just like the week before, Thursday’s market reaction to the sell off was nearly 1.5% move to the upside. This was caused by Federal Reserve “whisperer” Jon Hilsenrath of the Wall Street Journal reporting Thursday that the Fed is not likely to dramatically cut back its quantitative easing program.
For the bears, there are clearly signs of hope. The emerging markets continue to be a mess and almost started a dramatic sell-off Thursday after Japan’s Nikkei sold off dramatically. Thursday morning, U.S. premarket futures were pointing to a S&P open just below 1600, but the market bounced when rumors of Jon Hilsenraths’s article began to circulate.
The Chicago Board of Options Volatility Index (VIX) finished the week at 17.15 after getting as high as 18.60 last Wednesday. I expect the VIX to remain elevated through Wednesday in anticipation of Ben Bernake’s press conference as he gives insight into the thoughts of the Federal Reserve.
Events for the Week to Come
This week will be all about the Federal Reserve. The market will be hanging on every word from the Fed and Ben Bernake. The Fed has been implying that it could scale back its quantitative easing program … but then it hinted it might not! This Wednesday we should get a much better understanding of where the Fed stands on the matter.
What Traders are Saying
There was general outrage in the trading community from both bulls and bears this week when the Fed leaked to its “whisperer” Jon Hilsenrath that it would not dramatically cut back on its QE program.
“Why does the Fed need to leak information or start rumors? The economy and stock market isn’t a chat room for pumping penny stocks,” said one frustrated trader.
The fact that it once again happened when the market appeared to be headed to the downside is frustrating to many. “Can mom and dad just let the market find its own way without constantly coming in to support an upward trajectory?” asked another trader.
I rarely insert my personal beliefs in this section but I do have to agree with the frustration. At the same time, I have to respect the fact that the Fed is supporting this market any chance it can.
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