Been talking the effect on interest rate pops for about three years now
Interest rate pops, whatever the source, the immediate market reaction is:discount the entire 3% mortgage rate pop all at once, and that is exactly what is happening.
Ending mortgage backed buying prematurely or on time, the market is ready for a 25% selloff, when it reaches critical mass. At about minus 5%, some capitulative event will occur. It is indiscriminate, winners sold with losers, panic, and the market's swept away in the undertow. Add in program trading, you can see why the markets stop the insanity program which trips at 5% intervals, made headlines yesterday
Interest pops that will cripple progress made so far, however feeble, and send us careening downward.
The bulls in Spain are mean and stupid, but when they run, you don't get in their way. This talk every week, it's "only" 1.5%, we grew 18% since beginning of year, is the "adult" version of I hope I hope I hope....the market has sold off nearly 3.75% in two weeks, we get to rehash month old FOMC notes as if we didn't know what they already said tomorrow Wed 21 Aug--and watch as stockholders of the Western world scare themselves sillier and drag the world back into recession part two. Silver is not immune.
My litany, a broken record, is, sell out of the money calls into January, buy short term in the money puts, if you wish to preserve core positions in ANYTHING. I expect a fifty percent retracement on the way back to 1175 on the S and P.
Argue all day about what QE did, or should have done. But PERCEPTIONS rule and at worst, it was a dam holding back what is happening now. It may not have done anything for the economy, but people THINK it did. It did lower mortgage loan rates and inflate housing to Aug 2004 levels. Housing prices are still improving as the last looky loos scuttle through the interest rate door. But you add 30% to the monthly cash flow requirement, people expect price reductions.
This is a bargain hunting reflex rally after two weeks of incessant down, even silver jumped back from -1.5% to plus 2/3%--this is the perfect time to sell covered calls, and buy puts with the proceeds as YDM said. There IS a story about market testing the 5% stop barriers yesterday presumably to prevent ETF monster moves, and there is dangerously close skittering along this 5% barrier from the top. The program traders have been forgotten, the yahooligans have not called for a retracement in the past year, housing sales do fall off after the last minute scurry through the door, but the market does discount the future rapidly, and there are hand grenades out there. What's the harm selling a 120 day 29 call, and buying some Sep calls $2 in the money?
rates have already gone up I dont think there will be ANY tapering, and perhaps metals are rising for many reasons, China India and many are betting that there will be no tapering FOMC notes will fore tell tomorrow?? so dead are you out of SLW now??