MorningWord 12/19/14: End of Don’t Fight The Fed Week $SPY

by Dan December 19, 2014 9:33 am • Commentary

The first words I wrote this week was this from Monday morning:


I concluded:

But for now, trading into and out of the Fed, I suspect we find our footing prior to the rate announcement and rally into it, as we have done on so many occasions during the QE period. We take solace in the Fed’s words and buy stocks out of it.

This was despite the fact that I remain nervous about what is in store for the investment environment in 2015. From Tuesday’s opening commentary (MorningWord 12/16/14: Here We Go Again?)

On a more immediate time-frame, the set up into tomorrow’s Fed meeting seems a bit treacherous for shorts (spoke of this yesterday in this space (MorningWord 12/15/14: Don’t Fight The Fed Week $SPY). We’ll continue to trim shorts on down days and only add to them on rallies. Some sectors are getting to an oversold situation alot faster than others and we’ll start sniffing around in those from the long side.

So what did we do, we closed a short biased position in COST (here), restructured a bearish trade in XRT locking in some gains and dramatically reducing risk (here), arrived at one new trade that we thought we be a quick beneficiary from the easing of market tensions, short biased TLT (here), outlined a couple set ups that we would only trade on bounces on the the short side AA (Name That Trade – $AA: Alcoa Can Wait) and DE (Name That Trade – $DE: Deere in Our Headlights) and waited out 2 big up days before actually pulling the trigger on DE a day later as the stock moved quickly to our desired entry point: (New Trade – $DE: Roadkill).

So all in all the trading week was marked by Fear, Skepticism and then Exuberance by most market participants.  My view was less schizophrenic. This final FU rally as we head into the end of the year is far from bullish in my opinion given the backdrop of the deteriorating global investment outlook. The DJIA going up 700 points in 2 days generally does not come in buy and hold bull markets. If this rally continues into year end it seems like a great opportunity to take profits on longs and look for some downside in what could be a rocky Q1 2015.