Archive for May, 2010

Tuesday’s Trading – 5/25/2010

Tuesday, May 25th, 2010

Futures tested the February low a couple of hours ago. On February 5th, the June ES contract made a low of 1036.25, and so far, it has made a low of 1036.75 this morning.

Monday’s Trading – 5/24/2010

Monday, May 24th, 2010

Of the major ETF’s, the XLF has the best-formed inverted head-and-shoulders pattern. And since this has been a financial crisis in both Europe and Congress, it is up to the XLF to lead. A 100% extension of the pattern targets the May 14th gap up at 15.77.

Crash Over

Thursday, May 20th, 2010

Am I tempting fate, or what? But the market has set a new record low for breadth. Look at this chart of the McClellan Oscillator (click to enlarge):

Thursday’s low of -414.13 took out the previous record set on October 9, 2008 (red “x” on chart). My data goes back to 1965.

So, that’s a rather epic over-sold level.

And what happened on the day after the previous record? On October 10, 2008? Well, things started off rather badly…

But then, BOOM!

Here is a 15-minute chart of that period:

The red arrow points to the close on October 9th were the previous McClellan Oscillator record was set. The next morning, the market gapped down and plunged. But soon recovered, and as the day progressed, a bullish falling wedge pattern formed (blue lines). It exploded upward in the last hour of trading, and kicked off an astounding 200-point SPX rally.

With only one ES futures contract, that was a $10,000 profit – or loss if you stayed short.

The moral of the story is that when the whole world is leaning short, absurdly huge short-squeeze rallies become possible.

It’s Time to Conquer Mexico

Thursday, May 20th, 2010

Today, Mexican President Felipe Calderon addressed Congress and gave Arizona a stern lecture over its new immigration law. But who is he to talk? According to this Amnesty International report, Central Americans who immigrate into Mexico are robbed, beaten, and sexually assaulted before being kicked out.

Not only that, but George Friedman thinks that Calderon’s government condones drug trafficking into the USA, and that the US military may attempt drug interdiction in Northern Mexico. (Article here.) But why stop there? Mexico is clearly a failed state. Is it not time for a little regime change?

Take that Calderon!

CNBC Wolfpack

Wednesday, May 19th, 2010

German Chancellor Angela Merkel has recently criticized traders as “wolfpacks” viciously attacking the pristine European Union governments. Did the wolfpacks run up all that EU debt? Not hardly, but traders have been, shall we say, somewhat enthusiastic about shorting the markets recently. And there is, of course, nothing wrong with that – unless you are posing as a “journalist” perhaps? In the past few days, I have pointed out several examples of CNBC leading the wolfpack here in the USA, and they were at it again this morning.

When the S&P 500 Index dipped below its 200-Day moving average (1102.16) at 11:50am, Matt Nesto came on CNBC to report the fact. But he also delivered an editorial comment: this breach of the moving average should “trigger program selling.”

Is that so, Nesto? And just where may I ask were these alleged panicky trade-bots? (click chart to enlarge):

As a matter of fact, an experienced trader as Nesto was pretending to be, might be forgiven for spotting a bullish inverse head-and-shoulders reversal pattern on the chart. Right? CNBC then went to commercial. When they came back, they sent Nesto out to do the exact same story: the market breached the 200-day moving-average and should plunge any second now.

Was that any way for a journalist to behave? Wouldn’t it have been better practice to say something like: I was expecting the market to drop, but it looks like dip-buyers were waiting to buy at the 200-day? Quite frankly, this looked like another blatant attempt to knock the market down.

In a low-volatility market, CNBC has less of an effect. But in a wild market such as this, CNBC has the power to make large waves, and they are not shy about attempting to do so. However, in this case, the market was dramatically oversold, and the wolfpack attack failed. As a matter of fact, that was the exact low of the day:

The reality appears to have been the exact opposite of what Nesto was trying to sell you. There were no trade-bots programmed to go berserk, but rather a large contingent of dip-buyers lying in wait.

And then CNBC changed tactics.

Jim Cramer came out at 2:36pm with a mission to ignite a short-squeeze. Yesterday, the SPX dropped 5 points as Cramer sowed panic. Today, the SPX rallied 5 points as Cramer ran the squeeze play.

Cramer’s performance today put the lie to his BS from yesterday. On Tuesday, Cramer put on his serious, reasonable, cautious guise to deliver the “LEHMAN CRASH #2 IS COMING!!!” message. He advised CNBC viewers to “be cautious” on the stock market; that is, SELL! SELL!, SELL!

Now, you would think that Mr. Cautious’s advice might be good for more than one day, right? After all, Cramer was posing as a very, very serious financial advisor yesterday. But no, today he totally flip-flopped. If you had a “financial adviser” like this clown, exactly how many seconds would you tolerate him for?

What did Cramer do today? He taunted the bears: If you don’t deliver a Lehman Two within a couple of days, this market is going higher. Do you feel lucky punk? Where’s your big crash? Huh? Huh?

Meanwhile, it was Cramer who threw out the “Lehman Two” meme just the day before!

Cramer and his hedge fund “fans” did indeed squeeze the shorts into the bell. Did they take profits before the close, or will they try to keep the squeeze going into Friday’s options-expiration? Has the CNBC wolfpack returned to its den? I will be paying attention to the editorial comments of the usual suspects on CNBC tomorrow.

Note: During World War II, squadrons of German U-boat submarines were called wolfpacks. So, it’s sort-of ironic that Merkel would use that term.