Fed Cut Rates by 0.25%, What’s next?

Published on November 1, 2007

Fed Cut Rates by 0.25%, What’s next?

November 1, 2007

(for details pls visit www.OptionPundit.net)

Hopefully some of the OP Blog users were able to make money from the event based on last post that was shared 1.5days in advance. There wasn’t much of a surprise element. Let’s review of what I mentioned for 100% certainty- Gold.

Whatever be the outcome of FOMC announcement, find out and select cheap options (not abs $$ but lowest IVs) to position for Gold’s rise. GDX, GLD, ABX could be gold play. I expect gold to do well.

fed-announcement-oct-31-2007.png Here is an intra-day chart of Gold’ performance. All 3, GDX, ABX and GLD outperformed Dow in price action after the fed announcement. GDX performed the best. It seems that Wallstreet is now finally realizing the value in Gold producing companies which has been laggard so far when compared with rally in gold. I sent another e-alert highlighting ETF that can be used (though the action was not expected to be great) and XLB and XLI particularly did well.

Oh BTW, I also share another e-alert on MON . $100 is not too far. Did I say I am still bullish on Oil, despite others continue to say give respect to Oil bear, you bet. Not till $100.

What’s next? I mentioned 3 scenarios. Except the rate cut, nothing spectacular happened so I am on a watch-out. I did close most of my Nov’07 portfolio before the announcement. Ah, that the drop in Long term IV wasn’t big enough so keeping Nov portfolio would have resulted in huge gain as Nov IV collapsed. But a discipline is discipline! No coulda, woulda, shoulda. I expect bearishness unless the Dow (and Transports) breaches the levels I mentioned earlier.

Another high flier is about to collapse today, Crocs (CROX). It may sound like a broken record, but keep an eye on high momentum growth stocks. CROX didn’t deliver a great outlook and the price will be hammered down today. There are many more such high fliers who are going to report earnings this week and next. So play with a bearish bias but protected on the upside as well (How, check out backspreads)

Bottom-line- I haven’t changed my bias. I am bearish, with a hedge on the upside if bull decides to take on bears.

Profitable trading, OP

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