Saturday, March 28, 2009

The “New Bull Market”

Let’s put the rally into perspective versus the last year of trading. Where is the volume?
Why hasn’t VIX imploded? VIX measures the cost to insure stocks against price volatility. The higher VIX is, the more it costs to insure a stock against falling in price. So you would expect VIX to implode if the Bear Market is over. But VIX is stuck, so fear is high and the odds of the bad all being over are very low.

The Hourly Rally
I think this rally has been on the back of a pack of lies from the CEOs of the major banks and several officials in the US Government spending several $ trillion of US Taxpayer money.

The only way BofA, Citi and JPMorgan aren’t nationalized is if they are allowed to lie about the value of the assets (via a change in “marked-to-market” accounting rules by FASB) and then sell these assets to taxpayers at artificially inflated prices.
The bank stocks loved it, because this is an outright redistribution of at least $2 trillion from the taxpayer to bank shareholders/bondholders.
The only way to finance this is through the Fed printing money and they announced they would start buying $300 billion on 3/18.

A Couple Interesting Days This Week
Traders key off of specific price levels and this week’s trading saw a lot of price acceleration (via trades in the Futures) at the key levels

SPX 804-806
804 was the 50-day average and 806 was the lows for December 2008 and January 2009

804/806 was challenged first on 3/18 when the Fed announced they will buy $300 billion in US Treasuries, then the market sold off into the Friday’s close
On 3/23 Geithner opened up the checkbook

March 23
804 Resistance (Green Line) held for most of 3/23, but was taken out at around 2:45 on a couple big Futures trades. If you were short, you wanted to have stops in right above 805. The Big Boys knew this and knew that if they could pop SPX above 804/806 , then they could launch a nice short-squeeze rally into the close.
That is exactly what happened and the clowns at CNBC got to have their fun

March 25 – 26
SPX rallied early and then sold off hard. The excuse for the selling was that Geithner told an interviewer he supported something other than the US Dollar as the standard “reserve” currencies.
He had corrected himself by 10:05. The market started to sell off at 1:00
At 3:05 SPX launched. The Dow rallied 200 points in an hour. It rallied 100 points in the last 6 minutes of trading!
It then rallied 84 point overnight and was up 100 points in the first 4 minutes of trading on 3/26

200 points in 10 minutes. That is the same bs they tried to pull in October 2008. It didn’t work then and my fear is that it won’t work now.

These big moves suck in money from individuals who rely on their government to protect them from large investors who try and manipulate the markets and steal money from the public. When Jon Stewart asked Cramer “Who’s side are you on?” he was addressing this CNBC habit of cheerleading the rallies driven by overt manipulation, that always seem to fail and harm the little guy.

My other fear is that you can only have these massive moves when there is not equilibrium between buyers and sellers. Prices are simply too high for investors to want to buy shares and take them home at night.

I think that shorts will keep executing orders at logical levels, with tight stops and reload each time the Boys hit the Futures Buy Button to accelerate moves up through the logical stop loss prices.

QE in the EU
Europe boarded the Quantitative Easing (QE) train on Friday. “Competitive Devaluation” will keep the currency market gyrating for the foreseeable future. Everybody wants their currency check so that they can export more.

US Dollar
The US Dollar held critical support. It will make a big move up or down in the near future.
Gold and the Yen continue to track the Dollar.

I have stops in on all Treasury, Currency and Gold positions.

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