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Today’s Market Recap.

  • Written by Syndicated Publisher 1 Comment1 Comment Comments
    August 30, 2011

    Why did markets rip 6.6% in 15 hours? Obviously no one really knows but I would surmise it is a combination of lack of conviction and retail being led to the slaughter house. Zero Hedge put up a great chart of the parabolic rise in short interest at the very same time the SPX was hitting 1,100.

    This begs the question who shorts after the market has moved down 270 SPX points? The same people who say they “cannot afford to sell” a stock when it is down 20%. Is there a wonder retail traders get beat up so much and later complain that “the hedgies manipulated the market?”

    I have news for you, the “hedgies” at last check are struggling to keep investors happy as they too face losses. I realize this may sound harsh but this site was not created to win a popularity contest but rather spread truth beyond all the noise of the mainstream media. All this market is doing right now is depleting capital from longs and shorts while reinforcing bad behaviors. Those who went short at 1,100 and from the data there were a lot just lost over 10% in short order (pun intended). If they were using options they lost a lot more than that. Those who are long once again saw no reason to sell positions even when against you. You can imagine they’ll be adding to longs next time SPX 1,100 prints.

    No new money is coming into this market. It’s traders and retail getting chopped up. The volume tells you that as do a few other signs of this multi day short squeeze during this low volume final vacation week of summer.

    Copper: Up 1.7% since the Friday intraday lows. Dr. Copper is not signaling equity strength and certainly not buying into the QE3 is coming in September noise.

    Gold and Silver: Precious metals are not selling off even with the margin hikes of late. In fact the miners are finally starting to catch a bid a sign that investors are beginning to believe in the real strength of gold and silver.

    Volume: Volume was non existent today and has been on all market rallies and the opposite on selloffs. Just look at the daily SPY volume below.

    I must forewarn you the following is littered with sarcasm. The utter nonsense that is in the market right now is mind boggling. Just like recessions clean up economic waste bear markets clean up investor “inefficiencies.” There is no shortage of “really smart traders” right now believing they can do no wrong. This is what happens at inflection points.

    The Fed cares about equity levels. Seriously many, dare I say a majority believe the Fed acts based on levels in the equity markets.  If forced to defend the equity market or credit markets, equities would be thrown under the bus faster than you could say “but the PE ratio is historically low.”

    Bonds are a bubble, a huge short. Why invest in US treasuries for two years at 0.38% when you can buy stocks which are “attractive with their low PE ratios?” If you understood the repo market (read here) you would realize part of the bid in treasuries is the need for collateral even if that means buying at negative rates. Perhaps the Bernanke put is really in the treasury market and NOT the equity market.

    Bank Of America is a good long investment. Uncle Warren paid up $5 billion and the sale of China Construction Bank produced another $8 billion. So BAC now has $13 billion in capital the CEO says they don’t need. So now BAC has to pay an additional $300 million in interest payments to Mr. Buffet and sold off an investment that was producing income. Mr. Buffet can also buy 7% of the equity shares which will further dilute the EPS. Do people realize that the $8.5 billion MBS “settlement” which is now in jeopardy could actually cost closer to $20 billion. So in other words that $13 billion they just picked up will be enough to cover the first of many “settlements.”

    The Fed has a two day meeting, must mean QE3 is coming. Perhaps QE of some form is coming such as a duration change to their balance sheet but new money printing? Highly unlikely. The Fed just put a date on “extended period” which was huge by their standards. Seriously a survey of 100 would yield a very high percent believing that QE3 is coming in  September because the Fed changed the duration of their meeting. Does that make any sense?

    The following video reminds me of the current equity markets. Rodney Dangerfield would be the bond market and the “academic” the equity markets. Enjoy. I certainly need a laugh after today’s nonsense.

    Images: Flickr (licence attribution)

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