Jackass Hole

Everyone's been waiting for tomorrow's Jackass  Jackson Hole meeting with baited breathe as to what Bernake is or isn't going to say. The popularity of this meeting has exploded since it's what apparently sparked the massive 6 month rally in 2010 with the announcement of QE2. Last year though there wasn't such a rally immediately after Jackson hole as "operation twist" was announced but was widely anticipated...and that's the key word...anticipated. When something is widely anticipated the surprise factor isn't there and so any expected big move in a particular direction doesn't materialize and is already baked in. Coming into the Jackson Hole meeting in 2010, sentiment (both short and long term) was quite bearish, the market was oversold and few were expecting QE2. The market was therefore ripe to respond favorably to a positive surprise and it did.  You should know by now that the motto of this blog is as true as 1+1=2 and so it follows that to make fools out of the most amount of people it requires the unexpected - not widely telegraphed events or concerns which makes the likelihood of Jackson Hole tomorrow not nearly as important as it was 2 years ago.

Despite what I just said though, tomorrow still has a chance to provide at least ST volatility as it seems expectations have been lowered. From what I gather, most are not expecting an implementation of QE3, but rather only a disappointing discussion about it and what it may entail. How much disappointment can there be if everyone is already expected to be disappointed?! So, there's actually a possibility for a minor upside surprise if Bernanke announces QE3 starting and if not, there will probably only be modest downside because most people are already expecting a "no immanent QE3" result.  I expect to see only modest upside on any positive surprise relative to Jackson Hole 2010 because we're not in the same situation as then. In 2010 the market was oversold and both LT and ST sentiment (AAII, Rydex, NAAIM) was bearish. Right now, the market is not oversold and ST sentiment is extended to the long side as per NAAIM and Rydex but big picture wise, there's no way you can argue people in general are giddy about stocks...and it's been the case since the bull market in 2009 began.

I wanted to talk about my failed GOOG trade a bit. Last Friday I was correct in expecting the market to bounce but I didn't get paid for it because GOOG, which usually outperforms on up days, badly lagged. Had it preformed like it normally did I probably would have make money on that trade or at the very least broke even. So, was this simply a bad beat or was there something else? It may have been the latter. The verdict of the Apple vs Samsung patent case (which apparently has implications towards GOOG given Android) was delivered over the weekend and so perhaps GOOG was held back because of this. GOOG dropped about 2% on Monday the first trading day after the verdict was delivered so I think I'm right about this. When I made the trade I was unaware of the pending Apple vs Samsung verdict. I was ignorant and I got punished for it. As I said before at least once on these pages, sooner or later the market will expose your weaknesses and one of them could be ignorance (elliot wavers learn this in due time).

Going forward I'm going to stick with the indices instead of individual names if I'm contemplating quick option trades. I know this sounds like hindsight bias, but the correct trade last Friday would have been to bought TZA 17 puts on the morning dip last Friday. They could have been had for .07 and sold for .30+ a couple hours later. I was asleep at the wheel, too busy watching GOOG that day that I failed to notice this opportunity until it was too late. Lessons learned.

As tempting as it may be given the potential for a volatile day, I will not be making any ST trades tomorrow. I don't feel I have a good enough edge.