Wednesday, July 20, 2011

No Follow-Through Off Tuesday Smash-Up; Hong Kong to Trade Silver Futures

Stocks lingered near the flat line for nearly the entire session, eventually succumbing to selling pressure late in the day, making Tuesday's low-volume rally appear more spin than substance. As usual, in a stunning reversal of fortune, financial stocks were the top-performing sector, up 1.02%, while six of the twelve sectors showed losses and the highest percentage gainer among the six winners - outside of financials - was basic materials, up 0.45%.

The big beat by the banking sector was highly attributable to the fact that the majority of trading on Wall Street is handled by these very firms, proving once more that the too-big-to-fail banks operate without scrutiny from the SEC or any other regulatory body, as self-dealing and insider trading runs rampant.

Sizing up the market as a whole, one could surmise that it is in desperate straits, stuck above the 200 and 50-day moving averages and just below the nominal highs of late April. A steady diet of sideways trading should be of benefit to the high frequency and momentum hedge funds and day-traders, but it's a difficult balance to maintain, especially when one is highly leveraged, as most of the larger firms are.

Having reached the midpoint of earnings season, it is notable that the major indices are less than one per cent higher than when second quarter earnings began in earnest on July 11 and lower than where they were just prior to the onslaught of corporate reporting. It's an amusing scenario, even as most companies have met or exceeded expectations, albeit, for many firms, lowered ones.

With the debt ceiling debate in Washington nearing end-game, stocks seem to be running in place, pacing off the worry of just what kind of stunt the clowns in congress will pull off next, the latest rumor calling for a short term interim raising of the debt ceiling, or having President Obama employ his powers under the 14th amendment, which, according to Bill Clinton, gives the president authority to raise the debt limit without requiring congressional approval.

The key take-away is 10 words from section 4 of the amendment, which says, “The validity of the public debt shall not be questioned."

In typical obstructionist fashion members of the Republican party have already begun questioning the assumption that the president could go solo on a debt ceiling raise, with some members mentioning impeachment and lawsuits.

If nothing else, invoking the constitution on shaky legal grounds would no doubt wind up under the purview of the Supreme Court, take months to wrangle over and eventually end up with a nice downgrade in the US credit rating and higher interest rates for all. That would effectively defeat the whole intent of the Republican and Tea parties for starting this fight, as losses to the Treasury in terms of increased spending to cover higher interest on borrowings would cause even deeper deficits in years to come.

As it is, Moody's and S&P have already raised eyebrows and issued warnings about taking the debt ceiling issue too far afield, and there's a chance that even if an agreement is cobbled together, a rating downgrade could already be in the cards.

After a while, this entire escapade of Washington Gone Wild becomes a futile, badly-managed fiasco. The debt ceiling should never have been tied to budget considerations in the first place. In the end, the Tea Party wing of the Republican party has to be seen as the unwise villain in this sordid, sick affair.

Dow 12,571.91, -15.51 (0.12%)
NASDAQ 2,814.23, -12.29 (0.43%)
S&P 500 1,325.84, -0.89 (0.07%)
NYSE Composite 8,281.83, +27.45 (0.33%)

On the day, winners and losers were nearly split evenly, with 3289 advancing and 3241 declining. On the NASDAQ, there were 71 new highs and 34 new lows. New highs led new lows, 95-19 on the NYSE. The combined total of 166 new highs and 53 new lows is a positive sign for marketeers, though comparisons will be harder to beat come September, October and November, as stocks scored heavy gains in those months last year. Volume was the same as every other day this year: sluggish.

NASDAQ Volume 1,874,350,375
NYSE Volume 3,767,229,500

WTI crude oil was down for much of the session, but finished 64 cents higher, at $98.14. Gold was off $4.20, to $1,596.90, and silver dropped 66 cents, at $39.56, though it traded below $38.50 earlier in the day.

Tomorrow will mark the final day of singularity for the COMEX silver market as Hong Kong will begin trading a dollar-denominated silver futures contract on July 22, tapping into rising demand for all metals coming from China. This could potentially create an enormous run-up in the price of silver, as the Hong Kong exchange will be seen as an offset to COMEX (and Anglo-American) hegemony.

It will be interesting to watch the vicious price swings once the exchange gets its feet wet and orders begin flowing from not only China, but India and other Pac-Rim nations as well. Many are hoping that the Hong Kong exchange will operate in an honest fashion, exposing the manipulative ways of the COMEX and the shorting strategies of JP Morgan Chase and HSBC.

A new player in the global silver trade might be just what the doctor ordered for holders and hoarders of silver.

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