Weekly Roundup: Strong Finish to a Choppy Week 13 comments
an article to
-
Font Size:
-
Print
- TweetThis
Asset prices went up across all asset classes on Friday, as stocks, bonds and commodities rallied with the US Dollar Index closing at the lowest level of the year. The equity markets had a spectacular finish after chopping in a tight range till the last half an hour. The energy sector outperformed most of the day with crude oil closing above the $66 level. The closing rally also lifted the materials, industrials, transportation and the banking index, while the Nasdaq closed at a new high for the year.
Yields fall as Bond Buyers Remerge
After the massive sell-off in long dated treasury bonds earlier this week, bond yields have pulled back substantially. It seems bond buyers were waiting for this round of treasury auction to be done before they stepped back. Since yesterday’s highs, the yield on the 10 year bond have fallen from 3.758% to 3.465%, while they fell from 4.628% to 4.338%. The drop in yields provided a much needed relief to the equity markets which were a bit disappointed by the less than expected rise in the first quarter GDP estimates.
Dollar Sells Off
The US Dollar continued the sell-off with the DX closing at its lowest level of the year. The Euro-USD futures (6E) too closed at the highest level of the year at 1.4164, which happens to be close to the 50% retracement (1.4156) of the Euro’s fall from last April’s high (1.5985) to November’s lows (1.2326). Some market commentators are calling for the Euro to continue to rise against the dollar till the 61.8% retracement at 1.4587.
I feel that central bankers outside the US are likely to make noises to stop the rise of the USD. Most of the developed economies are dependent on the US as their primary export market and continuing fall of the dollar will hinder their exports. As a result we are likely to see efforts at competitive devaluation by other nations to stall the fall of the dollar. Some of their actions may be pure jaw-boning to stop speculative traders; others may take specific market measures to help their cause.
The Spectacular Close: Futures Spike 2% in a Few Seconds
What a lot of traders are talking about is the spike in the equity markets at the close. The SPX was trading in the opening range (903-912) for most of the day before it broke through the upper resistance about 15 minutes before close. This seems to have triggered a large number of buy stop orders as the SPX surged into the close.
The move was violent and the SPX futures market, the most liquid market in the world, too got overwhelmed. Though the closing print on the SPX (cash) was 919.14, the ES futures traded all the way up to 927.75 at 4:00PM. The chatter is that there was an order to purchase 2500 contracts of the SPX futures at close entered by a single dealer (JP Morgan according to some). This corresponds to a notional value of $575 Million dollars. This resulted in all the offers to sell between 914 and 927 to be hit. This also triggered a lot of stop orders to buy, adding to the stampede.
Unnatural Market Action: Window Dressing or Something More?
It is common for stocks, especially those which have performed well in the prior month to trade up on the last trading day of the month. This is because of what is called window dressing where fund managers want to own stocks which have performed well to look good to their customers. However the spike at the end was not window-dressing.
There is some speculation that there was an effort to prop up the market into the close to ensure a finish close to the high levels of the month. It is very odd for a major dealer to wait till the close to enter such a large order especially on a Friday which happened to be the last trading day of the month. Liquidity tends to be less near the close on Friday as many traders and desk square out their positions before the weekend.
We are living in an era of significant government intervention in the financial markets. What some call market intervention for the greater good, others call market manipulation. It is not clear what happened today, but it was certainly not normal.
My Portfolio: Trading
I booked some profits on the TLT I has purchased earlier this week when it reached my 3% profit target. I continue to hold the bearish TBT Put spread. My USO put spread is not doing too well as crude oil continues to rise thanks to a falling dollar. Though USO is now at the upper end of the channel it is trading in, I will have to re-evaluate this position soon.
Altered Trading Mindset: Contra-Trend versus Trend Following
As readers may have observed, over the past few months my style of trading has become contra-trend. This is primarily a result of the market behavior over the past year where no trend sustains itself long enough to allow position trading. With sector rotations occurring every day, very few equity sectors are able to sustain their gains.
Over the past month, the macro themed trades like commodities and currencies are finally showing a sustainable trend. However, I have missed out on these trends because I could not reset my trading thought-process to follow the trend. This afraid to hold fear seems to be common theme across many traders. This perhaps is the biggest indicator that though the equity markets have risen in value, the bullishness which should accompany it is missing.
Market Outlook: 200 Day SMA Beckons but Short Interest Missing
The SPX is creeping ever closer to its 200 Day SMA which now stands at 928.60, about 1% away from the close today. This average is coming down about 2 points every day, and it is very likely that we will touch the average next week, especially after the bullish close this Friday.
Many market participants are expecting a big round of short covering once the SPX reaches this level and fresh money pours into the market to chase the rally. One caveat though is the large drop in short interest in the market. According to Bespoke Investment Group, the short interest on S&P 500 stocks is at the lowest level since February 2007, with the average stock having 7% of its float short.The largest decline in short interest was in the Real Estate Group.
The past few months have decimated the bears, who seem to have thrown in the towel. Though this can be bullish in the short term, it also means that any correction may be more severe since there are not that many shorts who will buy to cover during a decline. One can argue that there are so much money on the sidelines belonging to the people who missed the rally that they lack of short interest will not matter.
In any case, we are living in very interesting times with the financial make-up of the world changing dramatically. For an investor it poses significant challenges. At these times, I like to remember that cash too is a position.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
~
market-ticker.denninge...
As soon as it moves my way a little bit,I'm out for awhile....there's no way to fight GS,MS,and the boyz...
As for other governments, they can weaken their currency by dropping their currency to Zirp except the Japanese, if they want to keep up with US debasement. If I would them I'd just take my lumps though because simply put, the US looks like they are starting to roll snake eyes.
You better watch out, if equities rise in the US I doubt it will keep up with currency devaluation from her on out. Fed and Treasury, reign in your credit card (I mean currency) fraud. You're debasing the entire US economy. Are you trying to emulate North Korean counterfeiting operations? Compete with economic terrorists? Because simply, I don't get it. Inflation is the #1 job. To Geithner and Bernake, "Didn't you read your job description before you started working?."
======================...
dcb, you are 100% correct. The US stock market is being massively manipulated upward now and has been for many weeks. The fundamentals on virtually any measure you can think of simply do not support this massive bear market rally( not to say that some upward correction from March lows was not warrented-but nowhere near what it is). It is pretty obvious, at least to me anyway, that it is highly likely that the large TARP banks are using the hundreds of billions of dollars provided by the government to fraudently manipulate the US stock market upwards.
As an example, on Friday May 29/09, I followed INTC all day. It basically traded flat to down all day, with moderate downward pressure all day. At 10 minutes to close INTC was Bid=$15.46, Ask=$15.47 ( was less than this almost all day). Magically a new bid of $15.51 appeared at 10 minutes to close. What real investor would submit a bid 3-4 cents higher than the bid/ask? Answer nobody except somebody with very deep pockets intent on driving up the price. And that is exactly what happened over the final 10 minutes. INTC was fraudently and artifically driven up about 25 cents in the final 5-10 minutes. Since the entire US stock market was driven up by about 1% in the final 10 minutes on Friday, this same thing probably happened virtually across the board. Who has the money and the agenda to do that? Obviously the large TARP banks are the logical candidate with hundreds of billions of government dollars and the trading operations to actually do it.
If you note, the TARP banks in Q1 reported significant profits from trading. Even while they lost even more billions on failed mortgages. In fact trading profits were the only reason they were able to artifically claim they made profits at all. It certainly does appear that they intent to do that again in Q2. They have the government money to do it, the motive to do it, the trading operations to do it, and without question they are the most unethical and crooked SOB's in the world, so they very likely are doing it.
To support that you have the massive increase in oil prices over the past few weeks. Oil was trading in the $50-$55/barrel range a few weeks ago. Since then, likely these same crooks have moved it over $66/barrel. Granted a minor part of the move of warranted by the declining dollar as oil does historically increase as the dollar declines because oil is priced in dollars worldwide. However, oil supplies in the US are at record 15 year highs, something like 35-40 million barrels in Cushing, OK. The TARP banks purchased massive quantities of oil in contango back in Jan & Feb when oil was in the $35 range (estimated to be over 100 million barrels) and have it stored at sea in tankers. Note this is about 3x the level of already record high inventory levels at Cushing. It has been shown that OPEC producers are cheating on their reduced quotas and thus putting even more supply on the market as the price has risen. International Energy Agency has been continually reducing worldwide demand usage forecasts for quite awhile now. US refineries are running at very low capacities, something like 65-70% because there is simply way less demand for oil right now in the US. But apparently the laws of supply and demand no longer apply because excess supply should result in price declines. The exact opposite is happening. The only way that can happen is price manipulation, such as is apparently happening right now. Interesting how just a short time ago Goldman was forecasting that oil would go to $25/barrel. But once they were one of the parties acquiring the 100+ million barrels of contango oil stored offshore in tankers, now they have changed their tune and are forecasting much higher oil prices and very likely are one of the key manipulators driving up oil prices now.
In summary, it is pretty obvious at least to me, that the US stock market is artifically being manipulated higher and far above what any reasonable economic or valuation metrics would support. The bigger question is probably, when will these crooks pull the plug and let the market return to whatever is the real justified market level? Answer - I don't have a clue, but I sure wish I did. It has to happen sooner or later, but these crooks have very deep pockets and probably can continue this for quite awhile yet.
It seems to me that the only safe way to play this now is to sell put options, collect the premiums, and agree to buy stocks at much lower prices if and when this manipulation stops. Know I certainly would not be willing to buy any stocks at these artifically high levels. And to short anything with this obvious manipulation is total insanity, even though it would logically make sense to do that.
On May 30 11:12 AM dcb wrote:
> I don't think you can make predictions, but there are some observations
> worth checking out.
>
> the 14 day money flow has been decreasing and reached 27 while goldman
> propped it up above 880. Since this happened there are actually very
> few sellers left in the market to drive it lower. This is one piece
> of evidence to show manipulation. how can money leave yet prices
> do not fall.
>
> The above has led to huge inflows of money into foreign markets and
> on a trade weighted basis a dollar that is undervalued.
> when looking at prices of the american market it may actually be
> cheap in terms of foreign currency now and we may see some reversal
> of this pattern over the summer.
>
> I have no idea if this will be the case. I will say goldman will
> not allow the market to fall until enough buyers come in to drive
> the market higher again. If everyone has sold that will sell you
> can only go up.
>
> I will say I called the bottom to friends, but had done way too much
> reading in the press and by certain commentators who are economist
> oriented instead of traders and missed the rally. My fault and some
> strange obsession with having to have the perfect entry trade. <br/>
>
> On a macro level prices of assets are not supported by data, and
> the dollar is undervalued. If Bernake does the right thing instead
> of doing the banks bidding I don't know what will happen. If he continues
> with quant easing run for the hills.
>
> Just as everyone screamed collapse of the dollar last year the dollar
> gained. things have gone to high too far and too fast in foreign
> markets and things that should have taken a year have happened in
> 4 months. Once more this tells me manipulation/speculation.
>
> I predicted exactly what would happen in this crisis starting last
> year. unfortunately because I work alone and know almost nothing
> about trading I am not now retired. I have a whole class room of
> people who will state the above is true.
>
> when the government allows and condones market manipulation of the
> NYSE and the commodities exchanges predictions of the future are
> effectively meaningless because reality does not have to be reflected
> in market behavior. May 30 01:35 PM |Report abuse| Link | Reply 00
On May 30 12:36 AM Paul_L wrote:
> Zero hedge has some excellent articles on Unnatural Market Action.
> Goldman Sachs and etc were once the homes of many Treasury staff.
On May 30 05:39 AM fsckr wrote:
> Denninger's intelligent writeup of the f*ckery...
> ~
> market-ticker.denninge...
I still want to know which hedgies did those massive naked shorts (and maybe who had spawned some of those hedgies in the first place), and WHOSE DESKS those naked shorts were funneled through?
Why hasn't anyone investigated THAT?
And WHO had the most to gain by the demise of Bear and Lehman?
Motive and opportunity... in my mind they point in one direction.
On May 30 02:36 PM untrusting investor wrote:
> Very very interesting. Thanks for posting the link. If it smells
> like a dead rat, and acts like a dead rat, it probably is a dead
> rat. One can only hope that this type of manipulation gets investigated
> and somebody gets prosecuted and goes to jail.
baltimorechronicle.com...
On May 30 06:07 AM fatcat wrote:
> I opened small positions on double short USO and QQQ Thursday,just
> to be trading....or should I say giving money away.
>
> As soon as it moves my way a little bit,I'm out for awhile....there's
> no way to fight GS,MS,and the boyz...
zerohedge.blogspot.com...
On May 30 12:36 AM Paul_L wrote:
> Zero hedge has some excellent articles on Unnatural Market Action.
> Goldman Sachs and etc were once the homes of many Treasury staff.
On May 30 03:12 PM wpdragon wrote:
> Well, if we want investigation and prosecution, why don't we start
> with the naked shorting and put buying that accompanied the demises
> of Bear and Lehman last year, as well as all the other hits that
> were taken out on other large financials?
>
> I still want to know which hedgies did those massive naked shorts
> (and maybe who had spawned some of those hedgies in the first place),
> and WHOSE DESKS those naked shorts were funneled through?
>
> Why hasn't anyone investigated THAT?
>
> And WHO had the most to gain by the demise of Bear and Lehman?<br/>
>
> Motive and opportunity... in my mind they point in one direction.
>
I'll tell you why I believe that I think and trade the way I do. Because somewhere deep inside my head and heart and soul, there's this little thing called "survival instinct". And maybe it's even something a little more egotistical. Maybe it's because I don't want to be one of those suckers holding stock at the top... one of those people referred to as "the public". I want to think I'm a little smarter than "the public".
And in reality, I probably am. But that hasn't stopped me from losing more of my wealth than I like to admit as I keep getting caught going against the trend. Now that's hard on the ego. It's not a good feeling going to bed every night thinking you're pretty sharp when the market keeps proving you're an idiot. lol
I'm in a trap. Either I capitulate and go long at the next good entry point I see, or I keep playing this mug's game until I'm right... someday! I know what the banksters are doing and I'm powerless to stop it or forecast it. In reality, that's the problem every single one of us face.
Godspeed!