8.9% Down, Then 4.9% Up... Now What?

Tyler Durden's picture


Via Michael Naso of FBN Securities,

The S&P 500 achieved its anticipated 4-5% bounce off the recent 7-10% pullback, most of it accomplished in a very light holiday trading week.  Much of the gains were attributed to overly effusive optimism over the prospects of resolving the fiscal cliff.  Ironically, with Washington abandoned the past ten days for Thanksgiving, we have not heard anything substantive on the negotiations since Senator Reid and Speaker Boehner spoke jointly on the White House Lawn on November 16.

The returns in equities that resulted from this perceived positive outlook has likely run its course as the blue chip index has regained the levels from the morning after the Election.

The average monthly NYSE TICK never did reach deeply oversold territory and subsequently has bounced to a neutral +188.  With the exception of the August, 2010 pullback, which was too short in duration to trigger a signal (i.e. < +60), this statistic has corresponded with every major bottom since the March, 2009 trough.  Modest snapbacks achieved without a confirmation of extremely negative sentiment do not have much durability beyond the short covering that results from funds lifting hedges out of fear of being left behind.  Moreover, the S&P 500’s 50% retracement of the selloff from mid-September offers a natural point of resistance such that I expect little extension of this recent move.

Certainly, the mundane increases in open interest for the futures and the outperformance by the blue chips versus smaller capitalization names on a beta adjusted basis hint at such vacuous motivation for the upward move.  Consequently, as the week progresses, I would sell into any strength that arises, for the downward inertia should accelerate as the “theta” to the risk premium associated with the fiscal crisis will rise daily in the absence of a compromise.

Although an agreement among EU leaders to release the next tranche on Greek debt may fuel some additional moderate gains, investors soon will demand real progress from both sides of the Washington debate if they are to continue purchasing shares in light of data that cannot rise above the muck in Europe and is sullied by Sandy in the U.S.  Most notably, analysts currently anticipate a sub-100K print for Nonfarm Payrolls late next week with my Quick and Dirty model currently estimating a sobering and disappointing +63K.  The calendar remains fairly light over the next several days with Friday’s month end reading of the Chicago PMI supplying the biggest highlight.

We also receive the Beige Book on Wednesday; however, the Fed seems resigned to replace the expiring Operation Twist program with $45B additional unsterilized bond purchases regardless of the presented state of the economy.  I also will pay close attention to Consumer Confidence, released earlier that morning, for it offers an important gauge of the temperature for holiday season retail.  With this month’s revision to the University of Michigan figures producing the biggest drop since the height of the financial crisis in 2008, a similar downbeat reading could foreshadow a shopping community concerned about the overall strength of the recovery and how their finances will be impacted in the face of escalating health care costs and the possibility that Congress and the President takes them over the fiscal cliff.

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Mon, 11/26/2012 - 09:30 | 3010916 GetZeeGold
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Could be anything really. Does it really matter? Walk into any 711 and see if anyone cares.


Let them eat Twinkies

Mon, 11/26/2012 - 10:10 | 3010990 Dr. Richard Head
Dr. Richard Head's picture

I like the style of Eric Singer - Eric Singer has one rule: Don't invest in stocks while Congress is in...

Mon, 11/26/2012 - 09:27 | 3010917 lolmao500
lolmao500's picture

Man up republicans and congress, tell whoever wants to raise the debt ceiling to shove it up their ass... cut spending by reforming social security/medicare/medicaid, bringing the troops home and stop foreign aid. Cut the debt by saying that all the debt the FED owns = disappear. Kick Bernanke out, nationalize/abolish the FED and raise interest rates.

Cut the FREE MONEY line to the banksters. Let all those who have to go bankrupt, go bankrupt. Let the housing market crash where it needs to crash.

Mon, 11/26/2012 - 09:29 | 3010923 docj
docj's picture

Agreed - I'd be willing to entertain discussion of "new taxes" the day after Obama, Reid and Pelosi put on the table every last penny of spending cuts that were supposed to happen (but never actually happened) as a result of all the "budget deals" since 1986.

Instead, we have the spectacle of GOP "leaders" pre-emptively surrendering, as expected.

The Party of Stupid strikes again.

Mon, 11/26/2012 - 09:47 | 3010950 DOT
DOT's picture

Ah, I long for the days when the chosen would ponder the ways to spend the "Peace Dividend".

btw doc what is that word, "cuts"  is it French or something?


Mon, 11/26/2012 - 09:30 | 3010924 kralizec
kralizec's picture

Yeah, that'll happen!  Maybe if Hell freezes over and Pubbies grow a set...

Nah, they'll grab ankles like always, some habits just can't be broke...

This can only end one way...

Mon, 11/26/2012 - 09:31 | 3010929 GetZeeGold
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Might want to nudge those cats......I think they might be dead.

Mon, 11/26/2012 - 12:29 | 3011433 kralizec
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I have a shovel ready.  ;)

Mon, 11/26/2012 - 11:46 | 3011232 TWSceptic
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No just keep printing money, remember we want a gold bubble. Best way to get there is by promoting irresponsible / stupid government.

Also Obama is cool, anyone not supporting him is a racist! </sarc>

Mon, 11/26/2012 - 09:26 | 3010919 q99x2
q99x2's picture

Did you say you haven't heard anything substantive from politicians? I think you are going to have a long wait on that one.

Mon, 11/26/2012 - 09:29 | 3010921 fonzannoon
fonzannoon's picture

Yes lets all set our shorts on the idea that they cannot resolve the cliff. Then lets be the ones to get our faces ripped off when they rumor drop that they have agreed to a resolution. Only to rinse and repeat.  No thanks.

Mon, 11/26/2012 - 10:03 | 3010978 DeadFred
DeadFred's picture

VIX is ultra low

S&P is testing the bottom side of trend resistance for the first time in years

Bollinger bands are being stretched liked rubber bands to the top side

Short interest is low

Volume may return today...

So you're probably right it will rally hard today but I'm buying puts anyway.

Mon, 11/26/2012 - 10:32 | 3011051 GMadScientist
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And yet people still go to titty bars where they can't touch the help...

Mon, 11/26/2012 - 09:30 | 3010925 Squid Vicious
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between end of November window dressing, beginning of the month "new money flows", santa claus rally, "cash on the sidelines", end of 2012 window dressing, and some cheerleading from CNBS whores we should finish around 1500 on the S&P

Mon, 11/26/2012 - 09:31 | 3010930 fonzannoon
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In other news Morgan Stanley just upgraded equities and great white's off the coast of Australia released a statement saying "it's cool, come on in".

Mon, 11/26/2012 - 09:33 | 3010934 fonzannoon
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Is silver closed today or something? It seems stuck at the same price to the penny for hours now.

Mon, 11/26/2012 - 09:47 | 3010953 GetZeeGold
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Just give it a kick Fonz.

Mon, 11/26/2012 - 09:55 | 3010964 fonzannoon
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I keep trying to give myself a kick in the ass and figuring out something else to consume myself with.

Mon, 11/26/2012 - 09:55 | 3010965 PeeramidIdeologies
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24h silver ticker shows good demand this morning.
Stocks melt down today, commods up
That's my play.


Mon, 11/26/2012 - 09:56 | 3010968 Setarcos
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Breaking News.  Shock And Horror!

HFTs have rendered all charts useless for several years.

Mon, 11/26/2012 - 10:01 | 3010973 overmedicatedun...
overmedicatedundersexed's picture

understand the GOP/Dem unity party has as priority ONE: keep power at the federal level, you can't cut and do that.

the gop is not dumb those who support it might on the otherhand be looking in the mirror. as for the dems they never hide the fact that fed gov must always grow..in that they are more honest.

sick we have our 2 party illusion with gop supporters the most nieve.

Mon, 11/26/2012 - 10:09 | 3010987 orangegeek
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SP500 bounce was on very low volume.  The good news is that these trading houses are forced to perform.  Trading houses have to push markets up and down to turn profits.


It's when the push down occurs that the floor falls out and they can't control - up to this point they have.  The volume on the market fall is huge.  The volume on the climb is pathetically anemic.




This daily chart shows volume rockets on sell off and volume crashes when buyers step in.

Mon, 11/26/2012 - 10:30 | 3011048 GMadScientist
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H.R. Puffin-Stuff

Mon, 11/26/2012 - 10:36 | 3011059 wagthetails
wagthetails's picture

sideways trading until a meanless compromise on the cliff is announced on the last day of the year.  Despite not really accompplishing anything of substance, the headlines will send stocks rallying 5+% with another 10% leak higher in Q1.  underlying fundabmentals will, of course, continue to deteriorte over this time.  New year, same story. 

Mon, 11/26/2012 - 10:43 | 3011079 Quinvarius
Quinvarius's picture

Because 85 billion dollars a month on 40 to 1 leverage needs a home.  Or you can side with Kaminsky and try to sell at exactly the wrong time.

Mon, 11/26/2012 - 11:05 | 3011128 Racer
Racer's picture

The biggest bounces happen in bear 'markets'

Mon, 11/26/2012 - 12:12 | 3011360 RopeADope
RopeADope's picture

Nearly 50% of the retracement came in the overnight sessions, I am fairly sure there isn't natural price discovery going on in this market so Mr Naso will want to be careful about determining support and resistance levels.

Mon, 11/26/2012 - 12:21 | 3011404 Lewshine
Lewshine's picture

These sell programs are as fake as the upside moves. You need those herky jerky days of 08-09, where we got 500 point swings in both directions in the course of an hour...Them were the days that left even the HF traders contemplating suicide! The drops of today have a hook in them, and can at any moment be used to create another short squeeze thousand point snapper move to the upside on the most ridiculous and incredulous headlines.

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