The futures have been slightly positive for eight hours after the close as I write this. So now the question is, will Jim Cramer once again lead the short attack as he did Wednesday morning? Here is what he wrote at 8:06am on Wednesday morning:
“The shorts must make a stand here and force down the futures to create a climate of fear. It must happen, this has been way too big a gravy train and the fear must be sewn. That’s what hedge funds do, for heaven’s sake. Europe’s market seems more realistic.”
If you look at a minute chart of the futures from Wednesday morning, you will see that the wave of selling began less than five minutes later. A lot of hedge funds follow Cramer…
Watch the comments for updates throughout the day.
CharlieK,
That’s a good question. There is a huge broadening pattern already on the XLF daily chart, and the S&P futures has a less extreme one.
I have only been studying these broadening patterns for a short time, so I can’t say anything definitive beyond that they represent an increase in volatility which is usually bearish in the short term.
But I have been spotting these patterns more and more. A good example that I just found today was right before the March low. The broadening pattern that formed on March 13 & 14 on the SPY chart did indeed have a bearish resolution. However, the plunge on the 15th was the when the low was made.
So, I would say the pattern predicts increased volatility, which usually means a sharp move down, though it may be completed in one big day. However, volatility could also be to the upside, which is what we are seeing in the futures right now.
I would think that the kind of massive short squeeze that we are seeing now would put an end to this bear leg. The futures are at 1236 now and have almost reversed all of this week’s drop.
Matt
pooch i don;t like futures as a predictor of resistance breaking. they aren;t traded by everyone and a gap up is filled many times.
just my 2 cents as I’m not good at foretelling the future as you might have seen lately
K,
You can still buy option Puts and buy short ETFs, but these won’t gain on value unless the underlying securities go down. So you can use these to hedge your positions (buy XLF and SD, for example), but using them alone will be less profitable in this new market environment.
Without shorting, you have to rely on the owners of the stock to realize they made a bad investment. Psychologically people value things they own more than things they don’t. So for people to sell their stock, it has to be obvious that it is overpriced. People tend to value stocks based on price and analyst opinions, since most people don’t have a clue on how to evaluate a balance sheet or cashflow statement, much less an annual report or FED/SEC filing. With no shorters, stocks will float up. As they float up, people will think that the company is a good company. It is a classic bubble situation.
Concerning the RTC-like plan:
As CNBC highlighted, the brief statements centered on illiquidity of assets. I think this means that the plan is leaning towards outright purchases of trash (probably at bad prices) with no equity in the companies selling the trash. Basically, the typical American solution of buy now, pay later (national debt). With the legislation coming from a Democratic Congress, the Republican administration won’t have to worry about fallout from a Wall Street bailout, so I don’t think the taxpayer will be well-protected at all. Welcome to the U.S.S.A.
k hope the futures crash when i get up.This whole crap with the RTC is so bullshit I can’t believe the American taxpayer will get shafted again.I just sent out a letter to my congressman and I think everyone should do the same.This is nothing but a political move for MCain
thanks Paul. so short ETF’s now won;t be as volatile and return as much as before?
This reminds me of the Patriot Act.
1) Panic
3) Congress that is is eager to take Action, without thoroughly considering the consequnces, moving America farther from its roots (civil liberties/free market economy)
i would so put some money tomorrow for SKF at $99
hmm i won’t be able to trade tomorrow. and will only do it if i think SKF will inflate during this weekend’s bailout schedule
K, et.al. here’s you chuckle so you can sleep like a baby like some of us, the hamstrung, will tonight:
http://www.cagle.com/news/WallStreetCollapse/main.asp
You know the old joke – I slept like a baby. Every two hours I wake up crying.
K,
Basically what I’m saying is that removing shorts is VERY bullish for the market. Without the RTC plan, I would expect long rallies, with large crashes when bad news is announced.
If the RTC plan does transfer all the bad debt to the taxpayers, then the financial sector will recover. However, if they hoard the money with the short-term greed mentality they have demonstrated so far, the economy will continue to deteriorate around them, taking everyone down (including the banks). If they do loosen credit, then the whole economy could recover. We could enter a new bull market for quite some time.
Unfortunately, even this won’t last forever. With all the additional debt the US will take on, we will almost certainly go into a Great Depression. Just as SS and Medicare have outflows that increase much faster than inflows, the CDOs, MBS, and GSE loan defaults will increase as time goes on. Party now, pay later. It is actually a bit depressing. The good news is that it this is probably 5-20 years away. Of course, if you are in college now, you are probably royally screwed. Sorry.
define royally screwed?
K,
Think about your Apple stock. See how much you valued it? You sold it because it went down and you were afraid it would go down further.
People generally sell stock for three reasons
1) Take profits after a run
2) Fear of losses
3) Speculating on the company (short sellers)
Strike number 3, and number 2 will pretty much disappear. Greed will take care of number 1. Bubble.
and that is why i wanted to buy some real gold as kondratieff cycle scared me. but at least i won;t be as screwed as the people who have no idea it’s coming. (i think)
Of course, a lot depends on the how long the short ban is in effect (the shorter, the better) and what the actual details of the RTC plan are, so things could still turn out well.
Comprehensive financial rescue package will need Congress’ OK, expected in hours
Nice that I started a put position on SPY near the close. Ugh! Can I get my money back too? This is ridiculous.
Now I’m stuck planning a new strategy… any suggestions? This is nuts.
Zen,
Move to Canada and trade the TSX. Might as well get free health care if u are going to live in a socialist country.
You can socialize Wall Street but not healthcare. You can socialize Wall Street but not the oil industry. You can socialize Wall Street while, in the same breath, condemn nations that actually do socialize programs for the benefit of all people – labeling it counter to those dominant free market philosophies that supposedly keep the world grinning from ear to ear – until, that is, banks and insurance giants and investment firms start filing for Chapter Eleven. Then it’s okay for the government to step in and rescue them.
You can analyze the current economic crisis until you’re blue in the face, but the fact remains that good old fashioned greed is ultimately to blame. The United States is very lucky right now that its currency is the market standard, because were that not the case it would be, for lack of a better term, utterly fucked.
BPD, Canada’s “social” healthcare is needed because of the high sickening taxes to pay for it.
The United States keeps countries like Canada on the map. The rest of the world too.
There’s nothing wrong with greed. Its the fuel for progression. The world learns everything from the progressive and innovative United States. We’re world leaders.
The United States government is “of the people, by the people, for the people”. That means the “people” of the United States the government. And that’s how we are, we help each other out through crisis. There is no them and us, just we.
The United States isn’t lucky, there’s a reason the world pegs to the dollar. It’s called value. When your country’s currency is more valuable in real assets then it will be changed.
Canada needs to open a can of patriotism. Get out of the snow, it’s freezing your brains.
Tommy,
There is something wrong with greed when you profit from something that is going to explode at a later date and you know it. Dont worry u will be paying for Dicks sun valley house.
BPD,
Nothing is perfect. Greed has many levels. There are always bad political apples, business cycles, dot com episodes, market bubbles that bust, foreign crisis, hurricanes, tornados, and on and on. It’s not the crisis that shows the character of a country, rather how the country handles the crisis.
It’s fair to say that the United States has supported the world throughout history. The rebuilding of Germany, Japan, countless third world countries, and Europe in general. Our bounty has been their bounty. China has caught on to creating wealth to enjoy life to the fullest, why not attack them?
There is no problem with “rich” people. They are the ones that create wealth, provide jobs, new technology and innovation. If Dick wants two sun valley houses that means more wealth is being created AND DISTRIBUTED throughout society. Nothing wrong with that.
What do POOR people need? RICH people.