Equity Market Comment 10/31/07

I am probably one of the biggest fans of volatility but days like today are not friend to most traders and it is exactly this type of market action that causes me to stand aside on Fed Announcement days.

The volatility is so wild on days like this that it is virtually impossible to make an informed trade one way or the other.

I am posting a 1 minute chart of the S&P 500 cash simply to give a visual of how whacked out it was today.

Now onto the important information!!

The probability model had called for higher prices today although not quite as sharp as they finished. The model is calling for prices to move sharply lower in here, seeing today as only a temporary rally.

In a very high majority of times when stocks rally sharply after a Fed announcement, while the 10 year note gets creamed, the market has moved sharply lower over the next 2-3 days. The contraction in the S&P 500 futures premium over the cash that occurred today is telling us that the smart money realizes this market cannot hold itself up much longer.

Remain in the Sell Strength mode and keep the hedge in place on long term positions.

I thought I would throw in the 1 minute chart to show the whipsaw action today after the Fed Announcement.