Tuesday Outlook: Commodities, Global Markets 23 comments
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<< Return to page 1 - Overbought on Low Volume
Why this rally? Why now? The dirty little secrets are Obama's big spending plans are in trouble which Mr. Market likes, and politicians will always choose to inflate with the Fed providing heavy doses of liquidity and politicians giving away pork. Remember one thing, stocks can inflate too. One way the latter is accomplished is in this revealing piece in FT piece (registration required) on how the Fed and Wall Street work together to support markets.
It's also quite apparent that major firms are trying hard to prevent their clients from disrupting the fee lucrative financial plans they've been sold by buying any leveraged or even unleveraged inverse ETFs from ProShares, Direxion, PowerShares and Rydex. This is well summarized in the UBS statement that reads in part, saying their inherent short term nature is not consistent with the firm's long-term view of investing. Yes, that's code for we don't want you to trade out of your plans, period! ING joined today by disallowing some customers to buy BDD (PowerShares D/B Ultra Base Metals ETF).
Certainly volume remains light no matter the bizarre explanations attempted. But, as always, your broker doesn't put volume data on your end of month statement.
The bottom line is no one should stand in front of this train unless you have superhuman will power. We're going with the trends and that's our job. That doesn't mean we like it but staying systematic and disciplined is the only way to play the game for us. The market is much overbought and subject to any disappointments, especially when Friday's unemployment data rolls around.
Let's see what happens.
Disclaimer: Among other issues the ETF Digest maintains positions in: SPY, SSO, MDY, IWM, QQQQ, QLD, SMH, XLB, XLY, XLI, IYR, XHB, DVY, IVE, WIP, UDN, USL, DBB, BDD, XME, MOO, EFA, IEV, EWJ, EWA, EWC, EWY, EWT, ILF, EWZ, RSX, IFN and FXI.
The charts and comments are only the author's view of market activity and aren't recommendations to buy or sell any security. Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations aren't predictive of any future market action rather they only demonstrate the author's opinion as to a range of possibilities going forward. More detailed information, including actionable alerts, are available to subscribers at www.etfdigest.com.
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The question that I have been mulling over is; if most of the fast money, Elliott Wave and the CNBC talk has been on Dow 10,000 target or S&P 1,100 target and lets say this has been accepted by the trend followers...what actually happens in reality.
WIll everyone get out just before those targets are hit, thereby causing a massive crash or do we overshoot?
Wall Street profits from trades with Fed By Henny Sender in New York
Published: August 2 2009 23:04
Wall Street banks are reaping outsized profits by trading with the Federal Reserve, raising questions about whether the central bank is driving hard enough bargains in its dealings with private sector counterparties, officials and industry executives say.
The Fed has emerged as one of Wall Street’s biggest customers during the financial crisis, buying massive amounts of securities to help stabilise the markets. In some cases, such as the market for mortgage-backed securities, the Fed buys more bonds than any other party.
However, the Fed is not a typical market player. In the interests of transparency, it often announces its intention to buy particular securities in advance. A former Fed official said this strategy enables banks to sell these securities to the Fed at an inflated price.
The resulting profits represent a relatively hidden form of support for banks, and Wall Street has geared up to take advantage. Barclays, for example, e-mails clients with news on the Fed’s balance sheet, detailing the share of the market in particular securities held by the Fed.
“You can make big money trading with the government,” said an executive at one leading investment management firm. “The government is a huge buyer and seller and Wall Street has all the pricing power.”
A former official of the US Treasury and the Fed said the situation had reached the point that “everyone games them. Their transparency hurts them. Everyone picks their pocket.”
The central bank’s approach to securities purchases was defended by William Dudley, president of the New York Fed, which is responsible for market operations. “We believe that opting for transparency is a greater good,” he said. “If we didn’t have transparency, we’d be criticised on other grounds.”
However, another official familiar with the matter said the central bank “has heard that dealers load up on securities to sell to the Fed. There is concern, but policy goals override other considerations.”
Barney Frank, chairman of the House financial services committee, said the potential profiteering may be part of the price for stabilising the financial system.
“You can’t rescue the credit system without benefiting some of the people in it.” Still, Mr Frank said Congress would be watching. “We don’t want the Fed to drive the hardest possible bargain, but we don’t want them to get ripped off.”
The growing Fed activity has coincided with a general widening of market spreads – the difference between bid and offer prices – as the number of market participants declines. Wider spreads enable banks, in their capacity as market-makers, to make more profit.
Larry Fink, chief executive of money manager BlackRock, has described Wall Street’s trading profits as “luxurious”, reflecting the banks’ ability to take advantage of diminished competition.
“Bid-offer spreads have remained unusually wide, notwithstanding the normalisation of financial markets,” said Mohamed El-Erian, chief executive of fund manager Pimco in Newport Beach, California.
Spreads narrowed dramatically during the years of the credit bubble.
Brad Hintz, an analyst at AllianceBernstein, said he doubted that spreads would ever return to those levels, a development that could be pleasing to the Fed.
“They want to help Wall Street make money,” he said.
Why didn't your charts over the last month indicate the move up? I did use you charts to get out of commodities in mid June and avoided some losses (thanks).
I love the charts and comments but I guess I am less a believer in charts than before.
Fortunately I did some stock picking instead of buying ETFs and have benefited from the rise anyway, though I did not feel comfortable enough to jump into a Direxion 3x (passed on EDC at 72, now 119, oh well).
Anyone guess when we reverse? I am predicting mid-September.
Generally looking overseas is an idea, though watch out for emerging and eastern markets falling when US bad news comes out, though the currency gain will temper any downward move.
US stocks are just too high, but shorts so risky in this market so commodities, commodities, commodities: buy the ones that are really needed or really defensive as prices will rise due both to demand and a weaker dollar.
So now some analysts are telling us that volume is no longer relevant. Indeed, it appears that for this recent stretch of gains since March, that has been true, since volume has been light and upwards of half of that has been millisecond trading systems trading with each other. If David and I (or Goldman and Morgan) could command half the trading on Wall Street, there is a lot we could do for each other. Could we do it forever? Only if we know when to go short (and then everyone else needs to watch out) because at some point, p/e's come into play again.
Some of us believe that, relative to business prospects over the next year, p/e's are close to the stratosphere right now. As David recommends caution, you may notice me next to him on the loading dock, not on the tracks lookin for the train.
One point in the article is important - your brokerage statement doesn't include volume numbers. It should be carried on a bit further... when you sell you don't get penalized for having participated in a low volume rally. The price is still the price.
In my opinion low volume is only a concern if you are worried about longer term investing, not so much if you are a trader. And who is going to be doing longer term investing? Buy and hold isn't going to be a viable strategy any time soon.
But looking at a 10 year chart of the SPX I see volume on average of 2 million shares from 1999 through 2006.
so the credit bubble gave 2007 and 8 the average volume of maybe 3 million shares until the crash in sept 08, of course then huge volume of average 5 million?
So this summer after the crash and the maybe start of recovery we see volumes of 4 million?
Looks like good volume, what am i missing?
In the real economy, bank loan loss rates will be higher than the Depression.
In the real economy, government revenue is at its lowest level since the Depression, and most states are on the verge of bankruptcy.
In the real economy, the world economy is crashing faster than during the Depression.
But in the make-believe world of the government and the financial giants, the recession is over.
How do they do it?
Well, as I noted a couple of days ago, the boys use:
High-frequency trading, program trading-based frontrunning, and other computer-based manipulation of the markets
Creation and manipulation of bubbles
The Plunge Protection Team
Intervention in the gold, currency markets, and bond markets
Bear raids, naked short selling, and credit default swap holders driving companies into bankruptcy.
Bernanke is apparently almost single-handedly responsible (using the Fed's network of primary dealers) for the current rise in the stock market
The largest derivatives holders use their Counterparty Risk Management Policy Group (CRMPG) to literally collude - exchange secret information and formulate coordinated mutually beneficial actions - all with the government's blessings
The sales of U.S. Treasury bonds are heavily gamed. Indeed, as Rob Kirby and Ellen Brown point out, Bernanke and the boys apparently use hedge funds in the Cayman Islands to launder huge sums of dollars printed by the Fed to secretly buy U.S. treasuries:
The government also uses its preferred dealers to launder money through the Exchange Stabilization Fund (ESF), to prop up the dollar or otherwise game currencies
Normal accounting and reporting rules have been suspended, so that companies can pretend that worthless derivatives, CDOs, subprime mortgages and other "toxic assets" are worth perhaps time times more than they are really worth.
Go ahead...Buy Buy Buy..
"Que the band the deck chairs aren't under water yet." Yellow Submarine or Splish Splash I Was Taking a Bath?
On Aug 04 09:21 AM robert.b.ferguson wrote:
> Haven't you heard? Banks are paying back TARP funds which Uncle Sugar
> can now use to replace the missing 18% of revenues. Happy days are
> here again. Que the band the deck chairs aren't under water yet.
On Aug 04 01:51 PM Big Bubbette wrote:
>
> "Que the band the deck chairs aren't under water yet." Yellow Submarine
> or Splish Splash I Was Taking a Bath?
>
> On Aug 04 09:21 AM robert.b.ferguson wrote:
Also as it appears that Obama is about to piss away his "crisis" if he doesn't take the reins away from congress and come up with a real HC reform plan (Medicare+HMOs for all if you ask me), he will need to re-enforce the state of impending doom just to remind us that we are still in need of change. Assuming that all the talk of Fed shenanigans is true, then I expect a sharp 10% drop from these levels until congress comes back with a little more respect for authority.
Better check your Constitution, the president doesn't introduce bills, in many cases (depending on type), they can only be originated in the House.
IMHO, good thing too, who needs the teleprompter guy writing a bill for the President....
David, thanks again for the summation on the charts; I, for one, always find it helpful AND entertaining!
nothing in the constitution about the president not leading. BTW he is writing a good deal of this bill behind the curtain - he just can't sell it because it stinks.