Friday's Turnaround: Raid on the Shorts 49 comments
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From a DJIA low at 3:15pm of about 12,160, the index started moving a little higher for seven or eight minutes, and then literally exploded to the upside, moving up +225 Dow points (about +1.85 pct) in 30 minutes.
The question is, should the SEC post an observer in the CNBC television studio? Should a so-called TV "personality" or financial reporter be permitted to start rumor and innuendo within the last hour of a trading session, particularly on Friday? Should reporters be required to report the news? Should on-air "personalities" who can move markets to extremes be required to provide SEC investigators access to their phone and e-mail records?
Nobody wants to live in a controlled society - certainly not traders of the capital markets - but frankly, these markets are not transparent and the acts of deceit and manipulation that routinely go on necessitate some greater monitoring than happens today.
What's at stake is the credibility of the government, the agencies of government that are involved in the capital markets, the central banks, banking institutions, and so on.
What happened Friday in the last hour of trading was a raid on the shorts, pure and simple. It might have been orchestrated. For certain, there were parties acting in concert if even by common motivation.
I continue to say this: capital markets are losing the interest of the average person because they no longer represent a value pricing mechanism. For a world that needs liquidity to grow and prosper, that's a dangerous precedent. If liquidity contracts to the extreme, the world is facing recession, and perhaps depression.
What happened in the final trading hour of the week was just another warning shot over the bow of a floundering ship. If these incidents continue, uncontrolled, it could be that the next shot is fatal.
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This article has 49 comments:
seekingalpha.com/artic...
i think it was the rumor that ambac was going to be bailed out...charlie gasparino reported it on friday afternoon...
scott w
growthportfolio.ning.c...
"the facebook of technology and investing"
like there was some orchestrated buy or massive short covering..I've never seen anything like that move..how could we as investors get any clarity on what really happened..?..this was just so strange..had nothing to do with ABK or MBI...thats a smoke screen on the push higher..
There seems to be a lot of people around like Bill Ackman, Meredith Whitney, Prasant Bhatia and others who are determined to make a name for themselves by talking the market down. In particular, Ackman comes off like he's not going to be happy unless Ambac goes out of business or he's in charge of the company himself. You seem to be among that crowd.
If all of you are right, then the short side of the market is definitely where we want to be, and we should be thanking you for handing out the advice.
On the other hand, if there's one thing we've learned from trading for a while, it's that NO ONE is right in the markets all the time. You may be right for a while, even for a long time, but then along comes the day when you are wrong. And vice versa.
Even though the short side of the market has been paying off for quite a while, no matter where the market is, there's always going to be someone who's saying we're headed for a steep fall and there's always going to be someone who's saying we'll be at all-time highs before the year is out. That is not the question.
The question is:
Which is the path of least resistance?
From the tape, I see a lot of folks who are either very scared or are determined to push the market down - all on RUMORS. If they go on shorting and being scared and no one sees any value in lots of companies that are historically underpriced and still functioning without problems, then we've got another 20% down move coming very soon.
However, I also see a lot of guys waiting around with money burning a hole in their pockets, looking for any excuse to buy. If in 2008 the great credit scare of 2007 turns out to be not quite so scary after all, the latter are definitely going to take over for a while. All that will require is that someone with cash gets a handle on what all the CDO's out there are actually worth and begins to snap them up. After all, the Real Estate market goes up and down, but it doesn't go down forever until we don't need land and houses anymore. Do you see that happening sometime soon?
Who is going to pay? AMB is so far underwater.
Paulson sliped last week, when he said, "The banks should come clean."
Anyone should understand, more write downs are in the works. No one wants to admit to a banking crises. This is not a Saving and Loan crises, it is a Banking Crises.
Now is a good time to scare the shorts with a tempting rally, before the next leg down.
Thank you, Mr Greenspan, for the current credit bubble.
PS. I agree with the last post..trying to time the market is futile. We are in a bear market and stocks will most likely go down from here. Just make sure you don't get shaken out by the bear rallies.
For me, the message of this episode is that most investors should invest for the long term, in which the short-term noise cancels out and the fundamentals dictate prices.
Unfortunately market manipulation is prevalent in the market place as it stands today. There's manipulation like analysts talking their books, people starting rumors with no factual basis, Fed manipulation, PPT manipulation, and even Ackman coming out with a "plan" to save the monolines is probably based in some scheme. I would be willing to bet he will make a ton of money with some hedge against his monoline short position and the tip of the iceberg surfaced on Friday. In fact, the rumor might have come from him or his staff.
At the end of the day there are three things to remember: don't fight the system, the trend is your friend, and the enemy of my enemy is my friend. Fighting the system is pointless and a lost cause as evidence by the lack of substantive prosecution for the insider trading that plainly goes on. Learn to read the trends through technical analysis. No matter what someone is doing to the market they can't hide their actions in the volume and the price - that always tells the true tale. Finally, the market will always dole out the most pain possible to the greatest number. The weak shorts are going to get boot stomped here so your enemy (the market) will be your friend when you recognize that overall sentiment is extreme (in this case bearish) and you take the other side of it. That is if you are trading this market. If you are just investing, put your money in your mattress for now.
I believe that the overall trend is down but this will be a good opportunity to trade to the long side for some quick dough. Just don't forget that overall trend unless you want some market inflicted pain.
If AMBAC declares bankruptcy instead, than I will fully agree with the author.
That being said, Charlie Gasparino, a muscle-bound, macho man of a financial journalist, who claims access to the inner sanctums of Wall Street (ie The Boardroom), has been allowed for weeks to scream "Fire in the theatre!, the monolines are heading to a quick and painful bankruptcy; my 'sources' tell me so". He reiterated one of these rants of imminent demise on CNBC as late as Friday morning! Then, with a 1/2 hour left in a short trading week, he broadcasts that a "bail out" for Ambac is a certainty, and banks X,Y& Z are lined up to help.
Action/Reaction....sho... squeeze into the close.
On Monday some Power Pundit will reiterate the Financial Meltdown argument, the markets will plunge, and Bill Cara will say "you see, I told so...".
Yawn!
All the smug gloaters who were able to scalp a few tics on this run should be commended for their short term prowess (I used to be a pit trader myself), but you are missing the point of what he is saying.
When the market is subject to irresponsible manipulation by a few brokers of information, market efficiency and reliability dies, taking trust with it, and all you have left are scalpers.
Have you ever been in a market where liquidity has dried up because no one wants in? I traded for a short time in the Kansas City Wheat Pit. It was like a neighborhood poker game in those days. Money went from one guy to another, but at the end of the year, most guys were flat. We had to look to bonds, currencies and SPZ to make our money (of course, this is no longer the case in this, or any other ag market).
Congrats to the longs who made money. I would have bot the underlyings myself for the afternoon had I been in front of the computer. But you need to hear what he is saying.
You asked for it, and you got it. Welcome to Mundania.
What is proves is that it is a bear market and bulls are rushing back and forth before heading down a cliff. They needs more bulls on the back to push everyone down. Like the bulls we have in the last hour.
One thing about America is the government is broke and people are broke. That is worse than the 70s and I see very dark clouds ahead.
If you want to clean it up, then go for the whole thing. Dont whine when the market goes up, just because you are on the wrong side of the fence, or vice versa. Talk of reform - then SEC should bring back the uptick rule; shorting should be banned - how can you sell something that you dont have, even if you are buying it later?? Powerful and rich folks in the market can manipulate so that they can buy back cheap to cover the shorts. I dont need to elaborate with examples - companies have been runied due to one such problem, and there are myriad problems. Can you compensate for the loss to investors ?? Dont tell me you will put the crooks in jail, for it does not get the duped investors their money back. Enron's villians did it, got some jail term and one of them died too - but did the cheated investors get their money back ?? Kick the SEC out for inaction on so many fronts. Stop CNBC/Reuters etc. from reporting any false propaganda.. stop Ackman from repeatedly coming out with 'Dire' news on a day to day basis at the 'right' timing ...
You want a clean slate? then level the playing field and watch as the skeletons fall off the cupboard.
Simple as that.
THANKS
JIM
Really? I think I know what you're talking about:
When rumors circulated that Buffet was going to buy Hovnanian ...
oops that caused the builders to rise.
Let's try again ...
When rumors circulated that Buffet was going to buy CountryWide ... oops, darn it, that caused the financials to rally.
Ok, this is harder than I thought ....
Are you kidding me? This "crap" happens weekly on Wall St. GS probably finished covering their shorts on the day before. Cramer moves the market slightly with his nickel and dime investing viewers. GS moves 100's of billions through their network of brokers and hedge funds.
Yes my friend, it was orchestrated.
Let's hear some of those false rumors that caused the markets to tank because frankly I don't know what you are talking about. Off the top of my head a remember rumors that BZH and CFC were filing for bankruptcy. The BZH rumor did not pan out but who knows about CFC since the BAC deal was announched shortly afterwards.
For every bearish rumor there are at least 10 bullish ones.
Fridays "good" news will be often be eclipsed by Monday's "bad" news.
Unfortunately, a situation has been created where CNBC holds much of its audience captive in the pre market, and trading hours, which brings in big ad revenue.
I would love to have a friend or relative who worked at CNBC, and could text me right before the "news" breaks. I could retire in three months!
IMO, I don't care if Dinallo himself leaked the information, the executive editor should have waited until after 4:00 to report the story. In effect it was a rumor from an unnamed source, and while that sort of thing is wonderful fodder for the endless parade of talking heads on CNBC, it is rumor not news. IMO, The executives at CNBC should be horsewhipped for allowing tabloid style sensationalism to take precedence over responsible reporting.
My feeling is this: the bears will remember this. Right when we are rallying the most in the upcoming days, they will step in and tank this market. That's why I am going to keep my single "put" in place - I may just make money with it afterall.
It is sad that CNBC has such influence over the markets. Anybody that disputes this simple fact is naive.
Good luck.
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If you are going to trade on rumor and/or supposition, you deserve what you get.If you can't take the heat, get out, and stop whining.
One advisory that I have told me to stay out of US Equities until a clear direction could be had, that is, a move below SP 1300. Until then, they said, STAY OUT. But did I listen? No. Why? I was used to the easy trading scenarios of late 07 and Jan 08. I'd just double up or simply redo what I had done and made sure I took profits when they were there.
When the big sell off days of Jan happenned, a bunch of ceo's and billionaires got together and said WE NEED NEW MONEY. PERIOD.
So they pulled a few strings and made sure they had the liquidity available to them. They've been fighting the shorts ever since and those, like myself, who are relatively new, really feel it when things don't work out because , like I said, we're not used to these massive injections of cash into equities.
Should companies go broke? It's a tough one to answer, but the practical answer is that they do and have done so for a long time. Think 'MIssouri Railways' is still around? How about Braniff? Enron?
sure, new rules come about after these massive illegal profit taking schemes are discovered and I'm certain when Ambac goes or when Countrywide declares more and stricter mechanisms will be put in place to deter these types of activities.
In truth, Ambac and other reinsurers are not really working for the health of the economy. There's a whole other agenda that they have been pursuing with the capital that they have had access to since inception; same with countrywide, and I'm not just talking about lavish parties. If I simply told you what I believe is hapenning you'd most likely simply dismiss it as a 'loco' who needs to see a shrink.
However, if I told you that certain of our 'technologies', like the Concorde and even, say, the human genome project, are not scientific experiments but rather the pursuit of minds gone mad you might agree with me, right? Think about it. If the concorde is so great and flies so fast, why hasn't the ENTIRE planet assimilated and pursued that technology? Why? Why do we still have jet planes?
Yes, there are A LOT of answered questions when it comes to why certain companies are in the trouble that they're in. In fact, banks and their credit issues are the ones who have caused the bubbles in Asia and even the ones who pushed the US economy to the brink in 1929. The exact same thing is being repeated here and a lot of people have a gut feeling that all's not well and, as such, the natural outcome of such a scenario is the dissolution of these companies.
However, don't expect them to go down easily or quietly. They will pull every trick they have, and then some, to get at the money, whether it's through the Bernanke's Fed or through massive capital movements in the equities market or through selling their souls to foreign investors.
Once they've put all their resources to work and they're out of options, then you can expect the companies to start declaring bankruptcies and for the economy and the dollar to start regaining strength. Until then, don't overlook straddle strategies; that's been my weak area and where i've taken some punishment for not owning calls as well as puts.
May the blessings of liberty be with you now and always.
You need to get 'married'. Understand?
If you have THAT much exposure to this or that , you ABSOLUTELY and without question HAVE to own the opposite derivatives. I know you think you're invincible, as do I, but the truth is that getting that money back is easier said than done.
Think about the trader who's short the March 1333. That 's a good strategy, to be sure, but it's really just half a strategy. Why not have a calendar short, or hedge it with a [cheaper] strategy like a butterfly call -not that I know wtf i'm talking about, really, i've just dabbled in these- but the math is sound. So should your gains be thought of in terms of ebb and flow, though mine have been ebbing for some weeks here, unf. But, yes, my theories are sound albeit naked and slightly out-of-step with the whole mechanism. I'm looking into it, though, looking into it...
I finally bought bearx and it immediately started going down. Then, Thursday it paid off and I was happy Friday, until the market started up.
The market going up the last 30 minutes catches a lot of people who think they are buying at the low, too.
After the market closed they talked like stocks would go up all this week, but this morning they are talking the market down. They don't know a bit more than we know, until they do get their inside info, then they mess the rest of us up.
They mentioned the ambac/mbia deal earlier and nothing happened, but then when the market started shooting up, they said that was the reason. My take was someone pushed the market up, either to catch the shorts or catch a big buyer, but they used Ambac/mbia as an excuse.
such transparant intervention, you know the FraudReserveSystem were the only guys who could drop a billion in 5 minutes, the volume was awesome!
It just indicates the desperation factor, the banks are hanging by a thread. It's all the same to me, I made money on my hedges and put it into wheat. Took out more dough from that panic and now ready to sell more banks when this cat bounce fails!
hahahahahahahahahah