Straight Flush

One day you see me the next day I'm gone
Don't fight me baby I don't want to hold on
--Madonna

Markets fell victim to the 'the first move is the false move' dictum following yesterday's FOMC announcement. After an initial rally following the Fed's announcement yesterday afternoon, market participants decided on second thought that they did not like the tone of the FOMC statement, and promptly drained today to the tune of 2.5% or so.

Note that the uptrend in the making since early July has been clearly snapped.

If we were able to peer into the collective mind of the market to understand the thought process, here's one possible interpretation:

"We need the Fed's help to keep this thing going. Although the Fed said they'll be buying bonds, they're only going to do so to the extent that they maintain their $2 trillion in total assets. We wanted them to expand their balance sheet. Besides, since the Fed will essentially be replacing mortgage backed securities with Treasuries, this could be bad for the housing markets. SELL!"

position in Treasuries