Not me- I like the base. It doesn't matter though; I make most of my money day trading ES. Could care less what this thing does longer term. And how about those bonds today. Went totally bipolar before/after FOMC. Nobody can predict this market. SP big boys were long into it too and capitulated big time. Hilarious.

I have always dabbled in bonds here and there, but I recently began to day trade bonds pretty heavily, specifically ZN. I believe the intraday opportunities (aka volatility) are only going to increase for this asset class in the longer term. You see, I don't think the Fed is going to be able to stop housing prices from sliding in the long term, but they are going to throw the book at it by hyperinflating through the Fed Free Reserves. This is going to send inflation through the roof, and when fundamentals as such are present, the bonds market gets crazy.

What are some of the indicators that I have been using and will continue to research to trade these ultraliquid instruments?

• Japanese Government Bonds
• EUR/USD
• Bund/BOBL
• ES
• Yield Curve (other US Treasuries of different maturities)
  
• STOXX/DAX
• EUR/JPY
  

Bonds trend more than stock index futures, which is a welcomed change. Here is a secret for finding out which way they are likely to trend: Generally in the bond market, real money usually positions in the first 15-20 minutes. If you can quantify the cumulative positioning of large traders at that point, you have quite an edge.

If you wanted to catch the late afternoon pop today, you had about 1 minute to react. Luckily, I had spotted a few divergences in the tape which are summarized as the BAVT indicators in the picture to the left. The dark blue line under ES represents the large institutional traders while the green line is a mixture of mid-sized traders, a group largely made up of e-locals. As you can see, they were accumulating in the afternoon even as the big boys sold to them. There was finally a moment of truth at around 3:25pm where the mid-sized traders decided to push for a stop run. I caught most of the move before it faded, as expected. The best clue as to what was about to transpire was visible in the NQ tape as huge buyers stepped up to the plate at around 3:23-3:24pm, also visible in the picture.

In day trading, it's very helpful to be able see what the large informed traders are doing, the professional liquidity providers, and the dumb money (aka me).

No associated text to display

It sure is fun to trade though. Fat-tailed, ha! More like obesity.

They are trading extremely strong, and depending on where we close today, the stock indexes can go parabolic.

Want to see what the end of a bear market looks like? I'm not going to get into the fundamentals, but take a look at Morton's (MRT) and Ruth's Chris Steakhouse (RUTH). These babies go in the long-term account.

I can't say I've done extensive research, but considering the amount of accumulation in treasuries over the past few days, I'd say there' a good chance that the jobs numbers are going to disappoint tomorrow morning, and that today's move in stock indexes is probably exhaustion.

I was going to write my own post, but this guy basically thinks exactly as I do. Great commentary.

Bottomline: FOMC came in less hawkish than most thought, which is, of course, understandable considering the housing price numbers from yesterday.

Besides my long Dollar position, I have two directional plays that can act as partial hedges. I am playing Live Cattle as it starts a new bull trend. I am also playing Natural Gas as a continuation of a trend.

In case you missed it, my last medium-term call in futures contracts was Coffee, up over 30% in a few months. Of course, with futures leverage, the actual return was magnitudes higher.

Today I almost caught the lowtick on ES. I bought in extremely large size at 76. In early trading, there had been a lot of accumulation at these levels by the big boys. NQ was leading higher. Treasury yields were strong. BA and AAPL were very strong as we tested these lows. As soon as FNM started to uptick, the big boys really stepped up and bought the S and Ps. The total number of trades in the opening range were 15-20% higher than yesterday suggesting large vol. Many important Market Profile levels as well as pivots were acting as support in several indexes.

I used an old floor trader trick to manage the trade: If the morning's lows coincide with a pivot (today it was mid between ES Globex P and S1), the odds are very high that you will test the corresponding pivot on the other side of the Pivot Point if you cross above it. I exited the first half at 86. The second half was exited between 88 and 89 as we retested tough resistance from the closing range 2 days ago.

Background: I talked about the pivotal Fed decision to accept MBS as collateral last month. I had predicted that credit market volatility was going to spill over into equities at least one more time for a massive washout which happened just days later when the Fed had to bail out BSC. I timed the stock market bottom within 1 day and advised to buy anything before the end of that week because practically everything was going to go up, and everything did.

Correlated markets: Gold trading now seems to suggest that the dollar is going to materially strengthen. This would align with changing fundamentals, most notably, that the Fed is probably either done or close to ending its rate cut campaign. Despite gold's weakness, certain commodities like oil, copper, and rice are still moving to new highs. This divergence is probably related to the growing disparity between commodity trading and economic fundamentals which can be attributed to a rapid increase in new market participant activity in hard assets. We now find ourselves in an interesting situation in which certain commodities could continue to climb alongside equities in the intermediate term.

Five- and ten-year treasury yields showed a clear intermediate-term trend change confirmation this past week. This development really affected US stocks this week as lots of money came out of the treasury bubble back into other asset classes. I think this effect is likely to continue in the intermediate term. The flight to quality lost its ability to drag down equities to new lows.

Note: I have become a fan of Sentix sentiment polls since they correctly predicted in November 2007 that the stock market would have a medium-term (within 6 months) downturn. These same Sentix polls have predicted weakness in the Bund and US Treasuries for weeks now.

The Dow Transports are trading at new 2008 highs. This is an important development probably reflecting improving intermediate-term economic prospects in light of rate cuts, increasing liquidity, and government programs.

Despite these positives, I think there are still credit market risks with potential unforeseen spill over into equities like the GE debacle. I think they are selling vol way too hard in the VIX and VXN, especially considering almost every single Wall Street CEO has said the credit market problems aren't over (yet).

Nevertheless, some of the above developments can help cushion stocks in case we see any more "surprises". I continue to believe that the intermediate-term bottom was put in, but I wouldn't be surprised to see last week's gap fill in the next few weeks amidst continued credit market tightness.

No associated text to display

I noticed when GOOG put in a higher low after 11:30am, the NASDAQ TICK has had no interest in selling technology stocks. Even as GOOG retraced most of those gains in the early afternoon, there really hasn't been much interest in selling down the broad tech market. Now put 2 and 2 together...

Short 100s of ES contracts at 58 only to have cover them in the low 60s.

It is eye-opening that GE missed the estimate because they were unable to sell certain assets. Don't talk about inflation. Inflation is a joke compared to the problems these markets are facing. If this happened to GE, then it can, and probably will happen to other companies.

The VIX is lagging way behind real vol. Vol sellers keep getting it wrong. They keep pricing index options as if the worst is behind us. They might be right for a few weeks, but then another multi-sigma event hits the wires.

Next week we have a ton of small banks reporting. Just look at $KRX. It is dog shit. I was going to post yesterday that although I expected more upside today and maybe early next week, I expected vol to pick up some time next week with accompanying downside in the stock market, partially because of these earnings reports. Hell, even Bernanke said a few weeks ago he expects many small banks to fail. Not only that, it is well known that the Fed has been beefing up on personnel to handle these situations. That's where the Fed's money is going.

It is possible that stocks like WM have bottomed, and might even present a good long opportunity next week, but I'm highly discouraged about stock market upside prospects for the rest of the month of April.

No associated text to display

The market can be a lot of fun when a plan comes to fruition. My research last night had suggested good odds of downward momentum follow through in the Russell 2000. I expected this index to take out yesterday's lows. I spent much of the 1st half hour leaning short as the Dow rejected a high-supply level from yesterday right after the open. However, as the indexes crept lower, I noticed that the retailers, RTH, had relative strength. This strength took on extra meaning today because Wal-Mart and Costco guided higher. I also noticed relative strength in semis that started yesterday afternoon on unusually strong buying.

Not long after ER took out yesterday's lows, ES made a test of yesterday's lows and sharply rejected them on high volume. Additionally, the TICK indicators and the tape showed a sharp reversal in sentiment at key support. The total number of trades in the first half hour was over 20% higher than the average of the past few days, so I knew we had high odds of volatility. I went long in large size at 1353 and decided to hold for a retest of the day's highs. I thought we would test the day's highs because RTH, SMH, and several other sectors were showing extreme relative strength right after I bought. I also interpreted ER's failed attempt to take out yesterday's lows as having a good probability of emboldening the bulls and stimulate a trend day. A bit later in the morning, treasury yields were soaring in support of this view.

I ended up holding the position until ES hit the pivot at 1363, shorted off the pivot, rebought the dip, and held for several pushes higher. This market continues to meet my expectations that I set forth late last week.

Besides the obvious sentiment toward odds of recession, an important Fedspeak development this round was that the Fed, for the first time, acknowledged that sole monetary policy is inadequate in mitigating current market and economic risks. The Fed has realized that the "shotgun" approach is not going to work, and I wouldn't be surprised if they focused more on alternative methods of managing market liquidity and less on rate cuts. Since mid-March, the markets have begun to reward the Fed's actions for the first time since 3rd quarter '07 by selling commodities, unwinding flight to quality trades, and buying stocks. To me, this is the market's message to the Fed: Good job! It means the rate cut campaign is probably coming to a close.

On inflation, the minutes say, "Household survey measures of expectations for year-ahead inflation jumped in March to their highest levels in about two years; in contrast, survey measures of longer-term inflation expectations were unchanged or up slightly." This idea that inflation will affect us in the near term and less certainty about the longer term is what the dumb money thinks. I agree with Alan Greenspan that consumer price inflation will not get out of control this round, especially in light of recent Fedspeak, but perhaps in the longer term when the economy expands again.

"Several participants noted that the problems of declining asset values, credit losses, and strained financial market conditions could be quite persistent, restraining credit availability and thus economic activity for a time and having the potential subsequently to delay and damp economic recovery." These guys are right. Even with the GSEs' new ability to loan more and all of these Fed programs to increase market liquidity, I seriously doubt we will see the sharp recovery in the staff projections. That doesn't mean the stock market won't go up and fast discounting such a recovery, but whether it actually materializes to expectations is much more fuzzy.