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Strategies & Market Trends : John Pitera's Market Laboratory
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From: Hawkmoon8/23/2007 3:08:08 PM
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Couple of thoughts..

First a couple of premises to base my opinion upon:

1.) The CBOE Put/Call ratio suggests a market decline (more calls than puts). But is this realistic given that market pundits are expecting the Fed to cut rates to match the bond markets recent downward pressures on yields?

2.) The Feds move on Friday, lowering the discount rate, was OBVIOUSLY aimed at the heart of the short-sellers. His actions on an options expiration absolutely blew a lot of negative bets out of the water and hurt the shorts deeply. And it was clearly implemented with the purpose of sending a message to the shorts.

3.) Record level short interest on the NYSE over the past couple of months, as folks obviously anticipated a CDO blow-up.

4.) The fed cannot keep Fed Funds higher than public market rates forever. It has to follow the market with regard to its interest rate policy, or risk creating recession.

The problem for Bernanke. How does he lower rates without initiating the "mother of all short squeezes" in the face of this tremendous short interest?

I suggest that Friday was a signal to the shorts.. Namely.. Cover your positions as soon as you can because the Fed is going to lower rates. But instead of totally blowing you out of the water and creating a speculative fervor, the Fed is going to give you a month to unwind your short positions and bring that Short interest down to managable levels that doesn't create a massive short squeeze and equity bubble.

What do you all think??

Hawk
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