Time 3:14

Market commentary:

Tomorrow we will get the FED results. How should we hedge the portfolio to deal with the reverse of what the street expects? Everyone is looking for 25 basis points and then comments of a pause in easing policy. Some even see no cut in rates. How will this effect the market?Everyone believes this will be good for the market. We need to hedge in case it turns out to be bad for the market. I believe anyone with a brain would see that not cutting rates would be an admission by the FED that rate cutting is not solving the problem. This should be viewed as negative for the markets eventhough the initial knee jerk reaction will be to think the FED is stopping the rate cutting cycle because the economy is better. I believe the big money that controls the markets will eventually view a stoppage of rate cuts as negative. Therefore, any rally on the news of no more rate cuts should be viewed with scepticism. In fact, the market may very well sell off immeidately on such news causing consternation for the talking heads on TV.

While the FED has been cutting rates:

LIBOR has continued to go up.
TED spread continues to widen.
Short term Muni bond paper has stopped rolling and individuals have been stuck with the paper.

Meanwhile:

The market averages have rallied right to their respective downtrends
Pshycological resistance has been hit. E.g. 1400 S&P 500, 13,000 Dow
All averages are still under 200day MA which defines a bear market

We need to set up a hedge to deal with these market ills. Before the FED results come out @ 2:00 tomorrow I want to put 1/3 of my hedge on. After the news I will add 1/3 after the 1st 15 or 30 minute reaction. If we are in the money at the close I will add the final 1/3 of the position.