MORAL OF THE STORY, DON'T TAKE GERALDO'S STOCK TIPS
There is certainly no reason to be surprised by today in the stock indexes. Once I heard Geraldo say over the weekend that this event in Cairo would be very bad for the stock market, I knew we would rally Monday. I covered in advance, what has happened following these Friday declines at month end during the FED era, and this was no different. Here is the best way to think about this. The market is not going up for fundamental reasons, so why would it decline on them? The market is only rising because it is being manipulated by the FED and they are being directed to do so by the Executive Branch. As a result, what you have to consider is whether or not the situation in Egypt will change the mandate. If you think it would it would cause the Fed to stop launching futures buy programs, get bearish. If you think it is more likely to enhance those buy programs, which supports the government "recovery" narrative, get bullish. As always it is up to you to decide.
I did find this commentary from one of my original mentors, Kevin Haggerty, on the Trading Markets web site. I cut a small part out of it. As I have mentioned in the past, he was the guy who first made me aware of the PPT and how they operate. There is great reading at that web site, I recommend it highly.
It is evident that QE2 is not working the way the Fed and most administration friendly economists thought it would in theory but in reality interest rates are on the rise despite the Fed and QE2.
Last week, Steve Liesman [CNBC] put that question to Bernanke, and said that both interest rates and commodity prices are rising despite QE2, so how can that be a success ? Bernanke`s answer was “We have seen the stock market go up, and the small-cap indexes go up even more” That is another example of Bernanke essentially admitting that the market is a tool and is being manipulated.
The Fed has two politically imposed mandates, which are keeping prices stable, and creating an economic climate for low employment, so I guess manipulating the stock market is now the third one. None of those three mandates was what the original Fed was intended to carry out. The Fed is now owned and essentially mandated too by the Politicians, so what can go wrong ???
Many professionals expect a pullback, although many remain in the closet about it because they work for institutions and money managers that have to keep the game going so they always have to hype the market. Insider selling is the highest in four years, and there are negative momentum divergences, as the major indexes are extremely extended on a 1 year STDV basis. The sell side brokerage firms are hyping 2011 for a significant gain in economic growth, in addition to the bullish scenario for the 3rd year of the Presidential Cycle. However the SPX is already +94.3% going into that cycle so that is a headwind to the 2011 exuberance.
As I have stated in here many times, this whole thing is not news anymore, since they have basically publicly admitted they are doing this. My question that I always pose is, isn't this a slippery slope? I wonder how much everyone would like it if they decided to do the opposite and manipulate it down? It is always ok when someone is doing something wrong as long as we benefit from it right? The minute that wrongful act starts to hurt us, we all cry foul.. With all this being said, and I have harped on this time and time again in here for 2 years, where does all this leave us?
First, as I said the other day, a trend does not a day make. One down day in this type of trend means absolutely nothing at all. We still have a very powerful uptrend intact. Regardless of what is driving it a trend is a trend.
Second, we do have some historically bearish signals flashing caution literally all over the place. The Vix, insider selling, cycles, sentiment, momentum divergences, et al. There are a ton of things saying to sell, everything except the price.
Third, nothing will happen in lines with those bearish signals without volume.
As we saw Friday, volume can over power the Fed buy programs. Just the sheer enormity of the market nowadays dictates that 100's of billions are needed to stop a big volume down move. Although it seems they do have unlimited money, there is a cap to what they can do and we see that on these big days. Keep in mind that it not only requires huge amounts of money to turn around these declines, but it also results in a loss when they cannot do it. The Fed is the Fed, but they cannot lose trillions without at some point this genie getting out of the bottle. I think the taxpayers would have a different view on this if they saw how much money they lost trying to stop the 08 - 09 slide. It is in my opinion the sole reason why they refuse to open their books to the public.
Due to cycles and my indicators, I am still looking at the short side here, and will do my best to notify readers when I try to short this thing. For the moment I am flat watching this Picasso being painted. If you look at the last two tops, you will see that they featured a sharp break like Friday, then a bounce to retest the high, then a rollover. That is how I am looking to play this one.
The currencies I find interesting right here. Many cyclical things call for tops about here and dollar rallies. However, they are for the most part in up trends and the dollar down. This is a dilemma for me. I do have some marginal buy signals in the Aussie, Pound, Yen and Swiss. Some of those have already triggered longs which I did not play. It seems to me that the Dollar Index is starting to diverge quite a bit against my momentum oscillators. Although this does not mean to run out and buy by any means, it also tells me not to press a short bet there. Of course the reverse of that is long individual currencies. As a result, I am standing aside at the moment which I hate doing. However, what I hate more is throwing money away on marginal trades.
We have not even had one higher low in reaction to the increasing values each day in the oscillator which makes this a marginal short to me. For all I know this just keeps rolling over, but that is the judgement I am making for the moment.
Most of the currencies will trade with the stock indexes, and the dollar opposite. Since I am not sure about the stock indexes but am leaning to the short side, it all fits for me. I am going to wait another day or two to see if more clarity develops here.
One last thought. Keep in my when watching Sunday evening market action that the dumbest of the dumb money is the first two hours in the SP 500 futures of this session. These players consistently have been trampled by pushing moves down, just for them to get the sharp reversals like we saw today. I implore you not to become part of this herd.