Wild Which-Way Wednesday

ilene's picture

Wild Which-Way Wednesday

By Phil of Phil's Stock World

QQQ WEEKLYGosh that was some impressive BS on Tues., wasn't it? 

As David Fry said yesterday: "Most market veterans will tell you when markets rise on bad news that’s bullish. It’s hard to question this experience; but, Tuesday put this wisdom to the test. The news was just dreadful. The Greek situation is by no means resolved which is the slender reed bulls ascribed as a reason to rally. Frankly, all this Euro Zone troubles will continue to bob to the surface as troubles get only temporarily papered over.

What news there was featured awful Consumer Confidence data (60 vs 67 expected) which made the previous Michigan Consumer Sentiment data seemed as bogus as suggested here last week. On top of this was the double-dip in the Case-Shiller Home price data and a large drop in the Chicago PMI from 67.6 to 56.6 vs expectations on 63.

The good news from all this is just a repetition of the previous theme: “bad news is good, and good news is better”. This has dominated bullish thinking as they believe interest rates will remain low offering little competition for stocks. Naturally, another round of $7 billion in POMO Tuesday just threw gas on the fire." (chart by Dave Fry)

So much was going right for the Nasdaq yesterday we just HAD to short it, going for the SQQQ July $24/25 bull call spread at .35 and selling the June $23 puts for .30 for net .05 on the $1 spread with a 1,900% upside if the ultra-ETF (short the Nasdaq) is over $25 at the July close. Other than that, we mostly stayed on the sidelines in shock and awe of the amazing display of bullish firepower against a background of some of the most bearish news we've hear all year.  

I spent pretty much all day yesterday warning Members not to fall for the other kind of blatant manipulation as the funds gave us a mega window-dressing day.  Today I will either be a hero or a goat but, when push comes to shove - you do have to go with your gut and my gut was screaming BS at yesterday's move from the minute we opened all the way until that ridiculous close.  

Is it a coincidence that on the eve of the final month of QE2 the CME announced margin cuts on stock index futures at the market close? Is it a coincidence that the market began to move a half hour before that? No it’s not. This is how corrupt regimes operate.  (Lee Adler’s Wall Street Examiner)

Today though, we once again have news that is so bad - it may be considered good:  The ADP jobs report for May shows just 38,000 jobs added by the private sector.  That is down from 190,000 jobs expected by economorons (my new term for economists) and down 78% from last month's 177,000.  The word catastrophe springs to mind as do many other words that have 4 letters and apply to our economic situation...

Of course we've been discussing this for weeks but the bullsh*t bullishness was so relentless that even I was concerned I was being too gosh-darned negative yesterday morning.  As I mentioned, that feeling quickly passed and we doubled down on our oil shorts in yesterday's morning Alert to Members, where we grabbed the USO June $39 puts at .50. They shot up to .60 (up 20%) by noon but we were greedy and held out for .65 or better. 

It's certainly been a wild ride in May and, as the great Yogi says: "It ain't over 'till it's over" but May is now officially over and it was, in fact, a down month, despite the TREMENDOUS effort that was made in the past week to keep it from being a 5% loss.  Now it's June and we'll have a chance in this short week to see what is real and we still have our levels to watch.  Holding the 2.5% lines today will be technically impressive but we only got over those levels by knocking the Dollar down to 74.50 and I'm not at all sure that low level can be sustained and that is where the whole thing begins to unravel...

Levels 5-31

Can the Dollar be held down low enough to lift the markets?  Well, that all depends on how screwed up the rest of the World looks by comparison.  Yesterday's Dollar destroyer was news out of Europe that Greece is "fixed" but it's fixed in rhetoric only as nothing has been signed or voted on and we've been down the road of false promises and good intentions many times before in Europe where first it was "just" Iceland, then Ireland, then Greece, then Portugal and we're just about at the point where they are making the same soothing noises about Italy and Spain that they used to make about Greece and Portugal. It's a very strange chain of logic to follow towards a relatively strong Euro.  

Australia's GDP SHRANK 1.2% in Q1, the largest decline in 20 years INCLUDING the 2008 global collapse.  China's manufacturing grew, but at the slowest pace in 9 months at 52, with 50 being flat. In the UK, May PMI also fell to 52.1 from 54.4 and that is the UK's weakest number in 20 months. The entire Eurozone's PMI fell even more drastically, from 58 to 54.6 with Spain and Greece each falling into negative territory below 50!  Spain's Catalonia region reported a NEGATIVE 2.7% GDP in Q1, twice as bad as expected by economorons who study this sort of thing for a living. Paul Krugman says eurozone monetary tensions have reached the panic stage: "The water level has now dropped so far that the fuel rods are exposed. We really are in meltdown territory."

While Spain is pulling back money and bankrupting the provinces, China is planning a massive bailout of its local governments - shifting RMB2-3T ($308-463B) of debt off their balance sheets, and mostly onto the central government tab. Local debt is often discussed as a risk to the Chinese economy; it's been assumed Beijing would need to step in with its cash. Now the worry can shift to central government debt

The so-called Indignant Protests in Greece, purposely peaceful so far, get a bit rowdy as demonstrators block the exits from the Parliament building, forcing MPs to need police escorts to their cars. An appearance by composer Mikos Theodrakis, who calls the bailout a "national betrayal," drew 20,000 protesters.

How long before the American people wake up to our own "national betrayal"?  This chart series from Barry Ritholtz's site says it all:

click for all 22 charts

So what's next for the stock market?  Lee Adler writes:  "I believe that Tuesday’s rally was a result of manipulation, and Wednesday’s fall was a result of its failure. Liquidity should be favorable for all of June, except around June 15 when a moderately large Treasury settlement is scheduled, and I think that it’s all but certain that the Fed will quickly try to prop this again...The Fed probably cannot roll the medicine ball uphill on its own. This is a mixed bag that favors neither an extended selloff nor a big advance. More churning could be in store, and it is likely to be violent within the range. It is a treacherous environment... In government manipulated markets, the old “rules” don’t apply. We’re at the mercy of what they want, and therefore must give less weight to purely cyclical signals. By the same token, there will be days when the market fails to follow the dictates of the manipulators. (Wall Street Examiner)  

Thus the churning is likely to continue as countervailing forces keep the market on its wild ride. 

 

Try out Phil's Stock World here >