Market Floats Higher As Volume Vanishes, GS Pushes, XOM Rises, Oil Pops And Dollar Fa
The markets gapped higher this morning as lack of volume took hold. So far this day has been one of the most dead on a volume basis in the last month. In addition, the main factor in the markets continues to be the dollar. A weaker dollar and the markets run. This has been the way things have been of late and continues. Add in Goldman Sachs floating higher and Exxon Mobile getting a bid, all things are in place with light volume to keep this market propped up. After we saw our first down week on the Nasdaq last week in 10 weeks, the government, Treasury and Fed are sure to make an attempt to not let it continue. Even Goldman Sachs has joined in the party with a conviction buy on BAC with a target of $15. That was the price InTheMoneyStocks.com issued a week and a half ago pre market, as a bearish play and removed it Friday at the close with a drop of 28%. Dead on call. In any case, the bottom line is this market has everything going for it today. Light volume, GS up, XOM up and US$ down. With no volume, this market will have a very hard time dropping.
The market has staged a very impressive rally since the March 6th low. At that time the S&P bottomed at 666 and is now around 900. This massive rally has occurred in just two and a half months. Some talking heads in the media are now saying that this is the start of the next bull market. Many call a move of 20% or more a bull market and perhaps by that definition they are correct. However, the decline seen last year should then be called a 'mega bear' as the S&P went from 1576 to 666 in just 18 months.
Some market technicians like myself, that follow cycles, were looking for a rally in the market in the month of March. It is very common to see major reversals or turning points in the months of March and October. Even last March (2008), as Bear Stearns collapsed it was the buying opportunity of a lifetime. The S&P bottomed at 1256 and rallied into May 19th, hitting a high of 1440. This current rally has been much greater in price and about average in time. The difference with this rally is that this market has not had much of a pullback off this meteoric rise. What is making this rally so much different from last year? Obviously stimulus and government intervention.
In 2001, the Federal Reserve lowered rates to 1% as the market was in a deep bear market from the tech bubble and the 911 tragedy. This sparked a housing boom that created countless jobs. The jobs created were in construction, banking, real estate sales, home flipping, and even trickled down to the local sandwich shop. This also spurred the home owners to use there home equity like an endless ATM machine. The bubble created was most likely the biggest created in over 100 years. The bust now is mirroring the Great Depression.
Many traders know that the markets are ruled by emotion. The late Jesse Livermore used to say that there are four main emotions that control the markets. They are fear, greed, hope, and ignorance. In October 2007 when the market was at its all time high, it is safe that we saw a lot of greed and a lot of ignorance. In 2008 we did see a whole lot of fear as the markets fell off a cliff. Fear is the strongest of all the human emotions and that is why markets drop so quickly as opposed to moving higher. Then, there is the emotion of hope. Could this market now be in hope mode?
The Fed has lowered the fed funds rate to 0-1%. They are also buying almost a trillion dollars worth of mortgage backed securities. Working with FRB, the U.S. Treasury has created the Toxic Asset Relief Program (TARP). The accounting rules such as 'mark to market' accounting have been changed giving the banks profitable earnings instead of massive losses. The SEC has changed many rules regarding short selling and regulation. All of this and more has been done giving the markets hope. Hope has stocks up huge since the lows in March.
In 1930, during the Great Depression, many similar rules and efforts took place as well. At that time, the market bounced for six months off the lows retracing about 50% of the total fall made from the 1929 high. However, soon after, the market collapsed again. It made new lows and did not bottom until mid 1932. The irony is back then, the Republican party was completely swept out of office as is the case this time around. Can the U.S. re-inflate the markets or just create another commodity bubble? Are the job losses going to stop? Will new jobs emerge to replace the lost ones? Will it be different this time around? These are questions that still need to be answered. As for now there is just hope. My bet is with history.
I think you got lucky!
The H&S pattern isn't the best in as much that the right hand shoulder is higher than the left hand shoulder, which suggests that the buyers haven't quite finished strutting their stuff yet. This increases the risk associated with the trade, especially if the trader shorts near the neckline. As it happens, you were right and I was wrong but, even so, I would have been nervous about taking this trade for this reason.
Since the massive rally began in early March, the markets have soared between thirty and forty percent. Every time analysts, media, or economists question the rally and point to simple overbought stocks or specific sectors, after a small pullback, the market seems to mysteriously rally once again.
There have been many questions about the validity of the rally. Questions about whether or not the Government, Treasury, Federal Reserve or even the PPT (Plunge Protection Team aka Presidents Working Group) have been behind it. Let's examine closer.
The rally seems to have been a two part rally. One with volume and one without. When looking at the chart of the S&P 500 from March 6th, the bottom, to April 2nd, volume was very heavy. Since then, volume has been almost nonexistent. In fact, volume has continued to get lighter over the last couple weeks. Those that live and breathe the market know that light volume can make the markets susceptible to manipulation or propping. This means that those with enough money, can cause spikes in the markets. Once the markets begin to rally, often hedge funds and other money managers will join in the buying. Shorts get squeezed and the snowball effect will grow. In other words, it does not take constant buying to create a rally. All it takes is buying in specific stocks like XOM, GS, JPM, AAPL (market leaders) or the futures at a specific time when light volume allows it.
The second half of the rally, ever since early April seems very suspect. I have talked and written quite a bit about how impressed I have been with President Obama's administration in understanding the market and the Carrot Effect. The Carrot Effect is what I call the ability of the administration to keep the markets always looking for the next bailout, the next announcement or tidbit of news. By doing this, they keep the markets always looking towards the next positive event, keep the buyers long and the shorts fearful or on the sidelines. It has been pure genius. There is always some sort of presidential speech, Treasury announcement or Federal Reserve statement. If Tim Geithner is not speaking, President Obama is speaking. If President Obama is not speaking, then Ben Bernanke is speaking. If none of them are speaking, you better believe a bank CEO is making a positive announcement, an upgrade is coming or a massive suspicious "buy program" is hitting the markets.
These buy programs have been specifically strange to say the least. With minutes left in the market on countless light volume days, a massive buy program on the futures will hit where one-hundred thousand contracts go through or more. When talking about dollar values, we are talking in the ten to twenty billion dollar buy program range. Needless to say, there are not many hedge funds or money managers that can pull that off on a regular basis. If it is not the futures, then Goldman Sachs or Exxon Mobile spike at times that just seem too suspicious not to be a coincidence, lifting the markets. For those of you who are not traders, Goldman Sachs and Exxon are two of the major leading stocks in the market. When those two stocks run, others follow and rallies are created.
Probably the best example of the genius of the Administration and the Federal Reserve were the weeks prior to and including the release of the Stress Test. The Stress Test was a perfect example of the Carrot Effect I speak of. Leading up to the Stress Test results there was a constant "leak" of information. It was so standard, exact and methodical, that there is little doubt in anyone's mind it was being leaked by the Federal Reserve and the Administration on purpose. Each leak kept the markets inching higher. Each leak was testing the waters for the reaction of the markets. The idea of testing the waters was done just weeks ago when Chrysler filed for bankruptcy. This was a simple test to see how the market would react to General Motors, when it files. The market is continually getting prepared for the GM bankruptcy. At this point it is expected to have little impact. Just another example of the genius that is this Administrations understanding of the markets. In any case, leading up to the release of the Stress Test, the leaks of information showed the market was very receptive to the numbers the banks would be required to raise. However, the best kicker and genius of it all was that the numbers leaked to the market were actually more than the actual numbers that were announced. Think about the genius of this. Give the market slightly worse numbers but still positive as compared to what was feared. Leak it every few days to keep the market moving higher. Continue to leak it out, mixed with positive economic data (the validity and truthfulness of which most doubt) and then when the real numbers are announced, make them better. That is as sure fire way to cause a continued non-stop rally.
After the Stress Test results, the market has continued to see positive statements from the Federal Reserve, Treasury and the Government. According to many of these sources, the economy has bottomed. Has the massive government caused re-inflation rally worked? That is what they would have you believe.
Many may be asking what is wrong with the Government, Treasury and Federal Reserve propping the markets up and causing continuous rallies? If the markets moving higher, then why is it a problem? Peoples 401k's are doing better, people feel better about the economy. So what is wrong with this? Simply put, by doing this, the rich will get richer and the poor and middle class will get hurt. Why? Because not only have the bailouts put money back in the pockets of the big players on Wall Street, but giving a false sense of security to the market, will and has started to draw the small money middle class investor back in. Sure enough, these are the folks that buy at the tops just before the drop and sell at the bottom when the pain is too severe. The Federal Reserve, Treasury and Government have not learned their lessons over the last 10 bubbles that were created by fake intervention. Each intervention and fake bottom causes more hurt and problems. While they may be propping the markets up for now, the markets always find their true level. Near term happiness and instant gratification is short lived when the Government and Federal Reserve's hands are messy with manipulation and intervention. Long story short, the governments manipulation, will in the short and long run continue to transfer wealth from the small investor to the large.
These comments and views are just my humble opinion and not based on hard facts. They are based off of observations since April and countless years as a pro trader, studying and understanding the inner most workings of the markets.
I really enjoyed reading your piece. You have tremendous insight - and a suspicious mind. I like that. I'm just a newbie trying to understand the dynamics in the market. I will continue to read your posts.
Thanks again for a well written and well argued opinion piece.
With Goldman, Apple And Exxon All Higher, Dollar Inching Lower, Markets Have No Chanc
With Goldman, Apple And Exxon All Higher, Dollar Inching Lower, Markets Have No Chance Of Falling
Goldman Sachs, Apple Computer, Exxon Mobile all are moving higher today. These are the stocks that lead the market and anytime they are all up, the markets will be up as well. In addition, the dollar opened flat and has continually inched lower all day. That is just adding major fuel to the fire. If the dollar continues to inch lower, and these stocks do not pullback, this market can stay higher. Should we see one or more of these factors subside, the market would come in nicely. As always, watch the 3-4pm time frame for buy programs like yesterday. Seems common now.
FTO has been added to Bearish Pro Trader Watch List at the close of trading at 18.07. The energy stock has had a very nice move higher into good resistance levels. A pullback/consolidation phase is due from these levels.
FTO has been removed from the Bearish Pro Trader Watch List after it was crushed in sympathy to VLO earnings. It has been removed as of 9:43am ET at a price of $15.90. FTO had been added to the Bearish Pro Trader Watch List on 06-01-09 at a price of $18.07.
The Pro Trader Watch List releases the coveted stocks our top traders have isolated as a possible trade using our proprietary stock market technical analysis. It is the very list that each of our chief market strategists and top traders has in front of them at the start of every trading day and may possibly day trade or swing trade. Each listed stock/ETF will reveal the sentiment of either being bullish or bearish to help guide our subscribers in the direction we are watching. These are just watch lists and are not current trades.
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When a stock gaps higher by a solid amount, gap fill can be a great buying opportunity. Note the chart on Exxon Mobile below. See how when XOM gapped higher then sold off into the even price where it closed yesterday, that was a perfect buying opportunity. This play was good for $.30+ on the upside.