Operation TWIST Again: Market Crash Cheap Date.

Sept. 11, 2010 - PRLog -- As I told since August 24^th ( 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.]

This is a summary of the article:
http://seekingalpha.com/instablog/429369-shalom-hamou/92803-operation-twist-again-market-crash-cheap-date

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. 8^th. They own only US Treasury Bills and Notes with less than 2 Years maturity. None of their assets are deposited with any banks.

We had a Hammer on the US Treasury Notes on Wednesday August 25^th.

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.


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

http://www.youtube.com/watch?v=eJylrGomAIo


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.

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. 17^th.

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 Ordinary Folks:

That is 99% of the traders. We must split equally our investments between all the days from Sept 13^th to Sept 16^that 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 17^th) 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 13^th till Sept 16^th at the close. Updates will be announced on the Facebook Event:

The strategy can be accesses on the Google Docs spreadsheet:

Crash Play
https://spreadsheets.google.com/ccc?key=ta879WGOdBxfDH0e6...

Gold Play:

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


Facebook: Event: The Market Crash: Be Prepared.
http://www.facebook.com/event.php?eid=132651053416423

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After the Crash:

On Sept. 22nd at 12:00 PM EST, as we will have exhausted all our other options, I will, on "Market Crash: be Prepared" display a series of videos presenting my alternative to the Deep Depression:


An ideology is, is a conceptual framework with the way people deal with reality. Everyone has one. You have to -- to exist, you need an ideology. The question is whether it is accurate or not. And what I'm saying to you is, yes, I found a flaw. I don't know how significant or permanent it is, but I've been very distressed by that fact. A flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak. That's precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.

History teaches us that men and nations behave wisely
once they have exhausted all other alternatives