Discover Profit Opportunities with Managed Futures

Technology at its BEST!

The perfect execution platform for the electronic futures trader looking for SPEED and RELIABILITY. Arc Capital Management is an Independent Introducing Broker providing institutional clients, professional traders and financial investors with the means to help you achieve your goals. Try our Complimentary Platform Demo.

A Short History

Since mid 2002 to early 2003 (the capitulation time as some people called it), the S&P market has been trending up for years until the end of 2007. The market really did not have any major or noticeable corrections. In February, the China Shanghai Composite Index was limited down over night. The next morning the S&P market followed suit. But this sell off was very short lived. From that time onwards, the market basically starts with higher and higher volatility and still manages to creep higher and higher. At one point, the S&P even made historical highs topping the previous high which formed in 2002.

We already knew that housing was having a problem but it took some time to hit to the main stream. The new contract of Case/Schiller housing index came out and investors did not show too much interest. Nobody is talking about it because it will be very unpopular if whoever initiate it. Then, from the beginning of 2008, the market really started to react to the housing sub-prime problem. Sub-prime companies such as New Century and Countrywide were certainly in trouble to name a couple; government backed Freddie Mac and Fannie Mae had issues; the Bear Stearns bail-out; Lehman Brothers rumor, etc, etc. It is because those mortgages backed investment products which lead to banks and investment houses getting into trouble. It is really like a domino effect! Then Federal Reserve step-in did both conventional and unconventionally try to stabilize the market.  It may sound like a short stock market horror story; however, it may able to provide some facts and foundations for the future to come.

If we look at the S&P market as a whole, the last three months really gave us a noticeable correction. (Around 20% from the high at one time which S&P was around 1250) That is not really indicating to us we are in a bear market stage, only if it continues. All the data from the past months show us weakest of the economy but future data may not confirm we will step into bear market or recession. Recent Fed action and 'unconditional rescue' of the market tell us that they do not want the 'financial system' to be broken. They see the hidden danger and the consequences. They rather want to amend or reform or as Treasury Secretary Paulson just recommended yesterday an 'overhaul of the financial regulation'. Instead of doing the 'nips and tucks' of the market, they want to make a major change so that in the future they do not have to worry about using the 'outdated' policy. This is all very wise and innovative. But this will take a long, long time to achieve and it also involves politics between two parties. There is a Chinese proverb, 'Far away water would not be able to extinguish the near fire.' However, this news certainly will give the financial industry numerous debates to come in the coming days, months, and even years. But one thing is for sure, it tells you that the Treasury Secretary, Federal Reserve, and the Regulators are never stopping to find ways to come up with the 'better system' in the future. That will certainly keep the market confidence up in the future. Even if the future economic data is not friendly to the market, the Fed will step in and assist in controlling the correction. Certainly they do not and would not want another 'crash' in the coming months again!

A review of the S & P market from 1995 to present

S&P starts really fire up from 1995 all the way to 2000. (S&P from 450 to 1550.) It lasts 5 years. And then, a big market trend down to 2002-03 which is about 3 years. (S&P at 800.) The correction is approximately 50% and change. This time the S&P starts really fire up from 2002-03 all the way to 2007. (S&P from 800 to 1550.) It also lasts about 5 years. If you think the market correction is approximately 50%. S&P will be at 1175. This is still higher than 2002-03 which S&P was at 800. What about if it did not go to 50% correction?!

Fundamentally, Technically & Psychologically

From a fundamental point of view, presently, the market has already been in an over-pressed stage even the Federal Reserve has done all they can. So far what the Fed did is basically buying time for the market to take care of itself when the second half of the year comes. That is based on the scenario that the economy is going to pick up in an election year. As long as the market can be stabile for the coming few months, they will be blessed. Besides, you cannot fight with the Fed too long because it is quite unwise for a professional trader to do that. So that will lead the market to sideway or slightly on the upside for the days to come.

From a technical point of view, presently, the market looks already to have formed a temporary bottom. As the last few weeks of the Fed action showed us, it is pretty obvious they are trying to save the market from a continued fall and we have formed a double bottom on the chart. Technically this is very constructive on the charts and at least the technicians will be very cautious to go negative the market like they previously did. Overall, the market is going to drift sideway for the coming months.

From the market psychology point of view, professional traders are getting a little bit reluctant to short the market for a long time because both technically and fundamentally it might look at a late stage of going negative the market. If any unexpected events happen, the down-side risk may be less as much as the up-side risk. In that case, the market for the coming few months should be trading sideways. Even volatility may start to reduce too!

By summing up all of the above, the Fed and SEC learned a lesson on the 'non-transparent' products and failed to monitor the whole structure process of the transparency of those complex 'products'. That is the reason why they want to reform the system and also in future will probably want to be a 'super-cop' in the financial industry. Given the present intention of the Treasury, the Fed and the Regulators, the market may stabilize in the coming months.

Technology at its BEST!

The perfect execution platform for the electronic futures trader looking for SPEED and RELIABILITY. Arc Capital Management is an Independent Introducing Broker providing institutional clients, professional traders and financial investors with the means to help you achieve your goals. Try our Complimentary Platform Demo.