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This is Short Covering Before the Next Collapse
The market action of the last few days reeks of short-covering more than anything else. I realize that rumors abound of more European bailouts (what is this… the 12th rumor?), Microsoft buying Yahoo! (an outright lie), and other items… but the reality is that the market is telling us plain and simple that this is just short-covering and a snapback.
For one thing, short interest today is at levels comparable to those of March 2009… when everyone thought the whole world would end. So there’s plenty of fodder for a sharp short-covering rally to occur.
We’re also seeing market action that indicates a short squeeze is on. Case in point, consider Tuesday’s action in which an unfounded rumor concerning yet another European bailout produced a 4.2% move in the S&P 500 in the span of 40 minutes:
The effect was even more pronounced in the Russell 2000. In that case the market moved over 6% in the span of 40 minutes:
That’s a 6% move… in less than one hour... based on another rumor pertaining to a European bailout (what is this… the 12th?). This is absolutely extraordinary and shows in no uncertain terms just how broken ad fragile the market is.
Indeed, the whole thing smells of 2008. Back then we saw rallies of 11%, 17%, even 20% too… how’d those work out? Did the market going up then mean that things were fixed and we had made a bottom?
Do not be fooled. This move is short-covering and a snapback and nothing else. We’ve seen several of these in the last two months alone. Every time the market rolled over quickly and collapsed.
So let the traders play their games. Based on retracement levels this move could go to 1,182 or 1,200 on the S&P 500. But this rally should be used to get even more defensive than before.
The reasons are clear: the European banking system is facing systemic failure. Bailouts will not solve this mess. The banks are all insolvent based on toxic debt exposure.
Meanwhile, the US economy is rolling over in a BIG way. The ISM purchasers managers’ index, the Philly Fed index, payrolls, and the ECRI weekly leading index are all at or about to break into recessionary levels AGAIN.
Nearly half of Americans receive Government aid in some form or another. Food stamp usage is at a record high. The labor participation rate continues to fall.
And on and on.
In plain terms, the financial system is getting hit from all side. And the markets are setting up for a Crash on par with the 2008 collapse.
If you have yet to prepare yourself for what’s coming, now is the time to do so. Whether it’s by moving to cash and bullion, opening some shorts, or simply getting out of the markets altogether, now is the time to be preparing for what’s coming (remember, stocks took six months to bottom after Lehman… and that was when the Fed still had some bullets left to combat the collapse).
And if you’re looking for specific ideas to profit from this mess, mr Surviving a Crisis Four Times Worse Than 2008 report can show you how to turn the unfolding disaster into a time of gains and profits for any investor.
Within its nine pages I explain precisely how the Second Round of the Crisis will unfold, where it will hit hardest, and the best means of profiting from it (the very investments my clients used to make triple digit returns in 2008).
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Good Investing!
Graham Summers
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I am afraid that we all might be underestimating the Twist. These operations started this week. Just like the POMOs, the bankers are raking in generous fees on each transaction.
http://www.newyorkfed.org/markets/tot_operation_schedule.html
Better keep an open mind - that the market will melt higher even with the economy re-entering recession.
Moral of the story is that in a bear market, you keep your longs on a short leash and your shorts on an even shorter one.
If shorts are expecting a big crash,as the article suggests, why would they cover???
add an "over there" and I think this article would be spot on. Not that "over there" can't become "over here" although I'm uncertain if this could be in a big. But ENOUGH CONJECTURE! Here is your question class ZH! Is the Fed buying on the long end (twisting) because yields at the euro long end are about to explode higher (shouting! -and screaming and yelling etc, etc.) now answer me now or I will release massive flatulence upon you!
With all the garlic eater pumping in Europe, I have a hard time seeing any big catalyst to the down side.
I still keep TZA and SDS calls in my back pocket just in case, but it seems the garlic eaters always seem to take us green.
The definitive factor is market response to central bank policy. This round of bailouts may be just a short term placebo, but it will become a long term poison pill. A lot ofr gamblers would just call the track crooked and walk away.
http://georgesblogforum.wordpress.com/2011/09/13/federal-reserve-too-big...
Use this rally to get out of anything that you long, the drop from this rebound is going to hurt!
I think 1194 this go. But what the hell do I know? Still gonna jump some TZA at 38.
I have to say, you've been very consistent about your calls. If you look at a chart from 2008 you'll noticed that the S&P reached up and kissed the 75-day moving average just before the big drop. I suspect the same kind of snap back (bear market) rally here. I'm hedged now, but will pull that off when S&P gets close to 1,185 - 1,195... Thanks again for your consistency - all the best!!
...me thinks Phoenix capital is too steadfastly bearish. This blinds the trading eye to bear market rally opportunities. These are brutal, and this one has quite alot left in it. Today/tonight?...maybe not so much after the last three days. But do not be surprised if S&P1260 is seen over the next month
I was thinking 1,195, but 1,260 is certainly possible - that's a bit above the 75 DMA... I just don't want to miss the drop as I believe it will be fairly aggressive...
Thanks, Graham. Did you read the piece yesterday about traders and the trading mentality? I only ask because I think it did a good job pointing out the need to accept facts as they present themselves, not to selectively filter them to fit your own point of view. I've already called this "the first rally of the newest bear market" but a buddy pointed out that we are not technically in a bear market because intraday lows don't count towards the 20% pullback, only daily closes. Not that it matters. We've had 2 days and 40 minutes of a rip-your-face-off rally. Deal with it. I was staring at my screen in disbelief on Tuesday afternoon and all day Wednesday, finally snapped out of it enough to make some decent money today. Explain this however you want, but in the meantime just deal with it.
Volume was pathetic yesterday and today. I see no conviction on the long side.
Maybe because all the smart money was buying during the high volume crash?
Guess that means 'smart money' is sadly lacking.
they seem to be getting more and more volatile each time too....it is like a car swearving on ice, we are about to spin completely out
I've only been in the Markets for a couple decades , so have limited experience. The pattern I see is a lessor and lessor participation. Leaving fewer to move the market up or down. Most often, when fewer are involved, the market falls,,,just to find participation.
Even if Bank of England and Germany dump trillions into the system, buying up crappy dirivitives,why does that mean, anything but the Banks have Improved? Flip the rises but for crissakes, don't start believing consumers are going to enter the markets for a run to 12-14000 DJIA . This cannot be maintained, where E.U. has not been Bailed out less than 4+ trillion.
All I see is a continued short position accumulation, and an attempt to slowly bring the markets down while maintaining an easing in PPS without losing sharepositions in the accumulation lowern at each step.
God help the heavily long if the E.U. does not get that trillions of "Tarp" resolutions. God Help America if the Federal Reserve gives away Trillions more to the E.U. Banks for more "Liquidity" in dollars. These stocks will be like buying a depreciating asset class 2008.
@ Maddogs "We are Worse than Japan Now"
The FED will use the IMF and Swap Lines to Bail out Big Ben's Cartel of Banksters in the name of saving the World.
Your line: 'These stocks will be like buying a depreciating asset class.' is why we will be worse than Japan.
It has only begun. The refusal of our FED to let the bad banks Fail creates the Zombie Bank and Zombie Market Syndrome.
Worse yet, the Group of HFT and Trading Desk at Banks are the only ones holding up the markets.
Real Traders on the Floor will tell you. Most Retail Traders have quit buying stocks.
I have quit until I see a real capitulation. Your experience of a couple of decades and mine tell us both we have not seen that yet.
We have not even go close to anything like that yet. Even on the worst day.
Flash Crashes are not capitulation. They are "Manipulation"
Hence the lower lows each dip. Suck those Sheeple in!
Wish my neighbor would pay attention, but he's 87, and about to dump 100K in 'dividend payers' cuz they will always be around.
Then I bring up F.
SUKI (tm) is RELIGION