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TWIST Again: Market Crash Cheap Date.

By   Follow Me on Twitter     Message Shalom Patrick Hamou     Permalink

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AsItold since August 24th(The Limit of Quantitative Easing.) the yield curve is now subject to a swift twist from a low undervalued configuration to its normal configuration. The strategic background article for the tactic I present here can be found at Operation TWIST Again.[Fundamental basis, technical basis and tempo.]

Important Note: I have been extremely successful in predicting the movements of the yield curve since May, which tends to prove the validity of my models.

People who follow my lead have sold all their long term assets since, at least Sept. 8th. They own only US Treasury Bills and Notes with less than 2 Years maturity. None of their assets are deposited with any banks.

Now I am showing them how they can practically profit from that forecasted crash.



Green: Recent Minimum of the Yield Curve on August 25th
Orange: Objective; Almost Normal Yield Curve.


Recent Minimum Yield Curve and the Normal Yield Curve
(Image by Shalom Hamou)
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We had a Hammer on Wednesday August 25th.

Note that we had two runaway gaps: on Thursday for the 30 Years US Treasury Bonds and on Friday for the 10 Years US Treasury Notes.



This TWIST will have dramatic financial and economic consequences.

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Given all of the background I concluded that the most probable date for the crash would be on September 17th. That conclusion is reinforced by the realsiation of the prevision of a good auction on Sept. 8th followed by a dismal auction on Sept 9th.

Crash Play:

Amount to be played: I suggest 25% or more of the avalaible cash on hand. (The expected probability of success of the Hindenburg Omen being at the minimum, 25%).

There are two distinct and consecutive steps: Stocks then Gold.

First Stocks:

Given that the most probable date of the crash is Sept. 17
th and that this trading day finishes with the Triple Witching Hour the most efficient of playing is to buy out of the money puts on stock indices expiration on Sept. 17th.

Timing:

This is only for people with great sense of the market and should be used only by people with great experience of it and their own reactions.

The idea is that stocks encouraged by the illusion of a steepening yield curve will have first a sharp upward movement. The tops might very well be slightly above the recent tops and constitute a bear trap. I would then buy the puts when the underlying would be at 1028 and in any case before or at Sept 16
th.

Fear Factor:

A crash occurs when the market is the most optimist about its future. So contrary to common sense there is no reason to have a high VIX (implied volatility on SP500 commonly called the Fear Factor) before a Crash. The Fear Factor is elevated because of a fall that has already taken place.

Financial crises are characterised by discontinuous breaks in market pricing the timing of which by definition must be unanticipated - if people see them coming, then the markets arbitrage them away.

Caveat:

If the yield curve gets around the normal yield curve the market should be sold whatever its level and whatever the time.

For the Rest of Us, the Ordinary Folks:

That is 99% of the traders. We must split equally our investments between all the days from Sept 13th to Sept 16that the close, between 4:00 and 5:00 PM EST.

Risk:

For every time and price of the underlying instrument (SP500) I will suggest two strategy. One which is a pure Crash play and one which will take into account a safe bet. My safe bet is 1040 although anyone can change that with his own taste (suggested values: 1080, 1060). The strategy suppose an objective for the crash (on September 17th) I will take 719, you can chose anyone below the safe bet.

The Strategies are regularly updated from the opening of the trading session in Wall Street on September 13th till Sept 16th at the close. Updates will be announced on the Facebook Event:

The strategy can be accesses on the Google Docs spreadsheet:

Crash Play


Gold Play:

The strategy will be published on Monday 20th at the Open.

In one of the greatest investment markets in the world, namely, New York, the influence of speculation (in the above sense) is enormous. Even outside the field of finance, Americans are apt to be unduly interested in discovering what average opinion believes average opinion to be; and this national weakness finds its nemesis in the stock market.But the essential issue here is one of insurance, with a relatively modest premium, against a potentially catastrophic, very low probability event.

Facebook:

Events:

The Market Crash: Be Prepared.

Post Crash Economy - Economic Non Compliance Week.

Page:

The Post Crash Economy

Groups:

Prepare for Market Crash Before September 9th.


The Religious Interpretation of Employment, Interest, and Money.


Libertarians Against Credit.

Muslims Against Credit With Interest.


Disclosure: No Positions

 

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I have an engineer diploma from Ecole Centrale de Lyon (France) and a MBA from Boston University. Since 1986 till 1994 I have worked as a broker dealer on the French Domestic Fixed interest market. Since the spring of 1994 I have worked on the (more...)
 

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