Today was the most predictable gap higher open that I have ever seen. After a week of heavy declines and a 50 point pullback in the S&P 500 Index the stock market gaps sharply higher this morning. Was the gap up caused because China cooled off their inflated economy? No. Did the stock market gap sharply higher because of the Irish bailout by the European Union or the International Monetary Fund? No. The stock market is gapping up sharply higher this morning so that the General Motors(NYSE:GM) IPO will not be a flop on it's first day. That is the plain truth.
The government has spun everything that they have their hands in as a positive. Meanwhile, the Federal Reserve Bank has the fed funds rate at zero percent since December 2008. This means that the large major banks such as J.P. Morgan Chase & Co.(NYSE:JPM), Bank of America Corp.(NYSE:BAC), Citigroup Inc.(NYSE:C), and Wells Fargo & Co.(NYSE:WFC) can borrow free money and pay the people with savings accounts basically nothing. On top of it all these large major banks continue to struggle as their share prices remain in a long weak down trend.
Then there is the second round of quantitative easing or QE-2 as it is called these days. What a wonderful use of transformational vocabulary. This is basically where the Federal Reserve Bank creates money out of thin air and buys U.S. Treasuries. This action creates a capital reserve or lower U.S. Dollar Index and inflates the stock markets. So much for capitalism and the law of supply and demand.
This morning the U.S. Dollar Index is trading down sharply by 0.52 cents to $78.55. As we all know by now when the U.S. Dollar Index declines the major stock market indexes will inflate and trade higher. That is exactly what is occurring today. This is also an options expiration week which is notorious for institutional games, therefore, those that bought puts yesterday for this expiration on Friday will be shaken out. Oh, well I suppose this market is simply for the savvy trader and not meant for the buy and hold investor.