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Today, the reaction to the Fed announcement was classic… textbook, even. It’s the spike/ reversal scenario I’ve observed (and occasionally traded) for years, and documented step- by- step in September as referenced in the pre-announcement post earlier today (see “related link” below).

As I said, the reaction isn’t always so perfect. But when it is, it’s simply beautiful.

Here’s the hand-drawn scribble I used last month to explain the trade:

And now here’s a 3-minute chart of today’s action and The Trade:

The Big Dummy is onto something, n’est ce pas?

Today, the FFT gave an entry at 54.20 on the Qs, with an initial stop at the bottom of the spike-noodle (that’s my scientific term for it), or 54.04. That’s a total initial risk, or “R” of 16 cents.

Using a simple 2-bar trailing stop, the trade was exited at 54.88, for a gain of 68 cents, or 4.25R in only 36 minutes.

For you home gamers, that means risking $320 on the Qs would have returned $1360 in the same 36 minutes.

As I’ve also said before, this trade works maybe 60 percent of the time. Perhaps 5 or 6 “Fed days” each year. But when it does (like today, and big-time in June), it’s possible to make a serious gain in only a few minutes if traded correctly.

Related link: Profiting from the Fed Announcement: The Fed Fade Trade (15 Sep 07)

As always, cheers and best of luck.

We’ve got about 25 minutes now…. ready for a potential Fed Fade Trade?

Just finished listening to the NPR article on the album Allison Krauss and Robert Plant have done together called Raising Sand. If you’re a fan of either (or both) of them, be sure and listen to the audio of the interview (it should be available by noon today). I especially like Plant’s explanation of why he doesn’t care for the term “duets”.

Krauss has what some have described as “the purest voice God ever gave a human,” which much of her work with Union Station seems to validate, and Plant, well as you can see from the pics in the article, he looks like death warmed over, but he’s a brilliant musician and music historian, and probably more intelligent and articulate than most any other rock star alive (listen to some of his past interviews if you get the chance, it’s like William F. Buckley with a sense of humor, and talent). That he, Jimmy Page, JPJ and Bonzo ever got together is one of greatest blessings in our musical history.

These two are supposedly already making plans for a 2008 tour. I’d certainly pay a premium to see that. Let’s cross our fingers.

Deflation could do it. Although the revision of the numbers from one (August) employment report ruled out any possibility of a recession, much less a deflationary recession, right? Right?

How about debt deflation? It’s coming, only question is whether the Fed has the power to stop it. In some circumstances, they don’t, just as Japan hasn’t for… what, 20 or so years. A deflationary contraction could conceivably outrun the Fed’s inflationary power, if it were severe enough.

Or maybe not. Hell, I grew up hunting rabbits and driving tractors, for Chrissakes. I’m still pissed that Case bought IH.

Here’s the chart:

(click for larger image)

That’s a very Wolfe Wave -looking pattern to me. An ascending wedge for over 18 months, now a spike out of the wedge, a near-term bottom which touched the top trendline, and a retrace.

A break below $1.40/Euro would look like the start of a thrust, no? Could we see the low 1.30s in short order?

Let me put it this way: Think of every single thing you’ve heard or read about the dollar, gold, oil, etc recently. What percentage of people and articles are forecasting

• A stronger dollar?

• Falling gold prices?

• Falling oil prices?

• Falling stock prices?

Ten percent? Five percent? One percent? How many guests on CNBC are saying, “Oh yeah, Maria, $60 oil and $500 gold on the horizon”? Limit as x goes to zero?

Now, with virtually everyone on earth on the same side of the boat, what does your trading experience tell you would bring Mr. Market the greatest gleeful pleasure, evil sadist that he is?

Think about it.

“All that we are is the result of what we have thought. The mind is everything. What we think we become.” -The Buddha

“For as he thinks in his heart, so is he.” -Proverbs

“A man is what he thinks about all day long.” -Ralph Waldo Emerson

“You are today where your thoughts have brought you; you will be tomorrow where your thoughts take you.” -James Allen

“Change your thoughts, and you change your world.” -Norman Vincent Peale

“Thought is the sculptor who can create the person you want to be.” -Henry David Thoreau

“Just what you want to be, you will be in the end.” -Justin Hayward (The Moody Blues, Nights in White Satin)

“Such as are your habitual thoughts, such also will be the character of your mind; for the soul is dyed by the thoughts.” -Marcus Aurelius

“What you believe about yourself, it all comes true.” -John Mellencamp (It All Comes True)

My good friend Lloyd, or Mr. Flatwallet as he’s better known, announces he’s a convert to the church of DCA, and I’d like to raise my wine glass in toast.

Actually, I’d like to throw some toast and rice in celebration and pull the water gun out of my trench coat. (And dammit, turn the volume up on those computer speakers when you play the clips!!). I love the DCA thing man, I love it. If Jonathan Swift were here we’d be having potatoes for supper.

And I’m gonna see his challenge, and raise him. Beginning this afternoon, I started building what is to become the largest short position of my entire life. I’m not going to Get Rich or Blow Out Trying. I’m just gonna Blow Out, period.

Even with my modest little account, I should be able to leverage at least a few hundred grand worth of shorts using OTM Puts. Got the Qs and GE already. Next week, maybe more of the same, maybe some AAPL 130s. Whatcha think? Lets do this thing.

Quotes. I need quotes.

I’m tired,
tired of playing the game,
ain’t it a crying shame?
I’m so tired,
God dammit I’m tired!
(that’s Lilly Von Schtupp from Blazing Saddles)

When Marcell got up the tree to where the coon was,
He reached out with that sharp stick and he poked the coon.
But it wasn’t a coon.
It was a Lynx!
We could hear Marcell screamin’, “Haawww, somebody SHOOT this thing, HAAWWW!!”
Uncle Versie yelled, “Marcell, I can’t shoot up there, I might hit YOU!”
Marcell yelled back, “Well just shoot up in here amongst us. One of us has GOT to have some relief!
(that’s Jerry Clower from an 8-track in the early 70s)

Oh yeah, and let’s not leave out this one:

Well we shot the line and went for broke
With a thousand screaming trucks
And eleven long-haired friends of Jesus
In a chartreuse microbus
(C.W. McCall, Convoy)

It’s been a long, a long time coming, but I know a change gonna come, oh yes it will.

(That last one was a bonus)