Friday, September 16, 2011

A Most Unimpressive Five-Day Rally Built on Sand

Even the excitement of options expiration on Friday - which explains just about everything about the week-long rally - could not keep stocks from registering a fairly unimpressive Friday showing.

Normally, on options expiration days, like today, volume spikes and the market generally takes off or sells off. Today's trade could best be characterized as choppy and sloppy, with all the major indices finishing close to their highs of the day thanks only to a spirited short-covering-into-the-weekend sprint in the final fifteen minutes of trading. The Wall Street criminal syndicate must have had their computers whirring at warp 10 at the end of the day.

The main reason the week-long rally was so unimpressive was threefold: first, the starting point came off a three-week low, the averages are stuck in a fairly enduring trading range, and the fact that options expired at the end of the week gives the impression that smallish short-term gains were all the focus. Nothing about the "sharp" rally was particularly exciting or indicative of any longer term trend.

The following recap shows, with links to charts, that trading stocks has been even less than a zero-sum game for the better part of the past two months.

First, the Dow, which closed today less than 25 points from its daily high, started off the week from a low point of 10,992, gaining what looks, at first glance, to be an impressive 517 points for the week, though considering it is still hovering below its falling 50-day moving average, which itself is blow the 200-day MA, shows that it's just another cyclical bear market, momentum move. Actually the recent rally from August 22 to 31 - 8 trading days - was broader and larger. Look what happened to that. It fell apart.

Besides that, the Dow remains well below the mid-July high of 12724 and even further down from the April 29 high 2011 high.

The NASDAQ was a bit more robust, the best-performing index of the bunch, today finally getting past its 50-day MA, though it remains below the flat-lined 200-day MA. It kicked up 154 points for the week, but, like the Dow, is still far short of the 2858 close on July 22 and down further from the April 29 high.

As for the most widely-watched S&P 500 index, it too came off a three-week low at the end of last week, picked up 62 points and is touching its 50-day MA. Like the other major indices, the 50-day has crossed under the 200-day MA. The S&P is 140 points below its early July high and that's a long way to go.

Obviously, the factors influencing the market movements this week were largely concerning Europe, which is still a basket case on the verge of total calamity, despite the best efforts of central bankers to paint a rosier picture than the stark reality of a Lehman-like debt implosion. The other factor, which should not be discounted in the least, was the quadruple-witching options expiration on Friday. With risk still quite high in the current environment, many a hedge fund and major trading firm is heavily invested in the options market and pushed their positions to winning spots all during the week. To see a continuation of this rally on Monday would be quite remarkable, considering that it is wholly fabricated by the few remaining players with the ability to move more than just individual stocks, but entire indices whichever way they please.

Since the correction which began in early July, stocks have gone sideways for the past six weeks, and, despite this marvelous, low-volume pump job, show no real signs of breaking out, over and beyond the 200-day moving averages and above the recent highs. Traders made money here, but investors are just as nervous as they were at the end of last week. Considering the dour economic data and the continuing credit, sovereign and currency crunch on the European banking establishment, any elongated upside should be considered a long shot.

Dow 11,509.09, +75.91 (0.66%)
NASDAQ 2,622.31, +15.24 (0.58%)
S&P 500 1,216.01, +6.90 (0.57%)
NYSE Composite 7,348.18, +19.08 (0.26%)
NASDAQ Volume 2,662,978,250
NYSE Volume 5,098,945,000
Combined NYSE & NASDAQ Advance - Decline: 3404-3109 (no breadth)
Combined NYSE & NASDAQ New highs - New lows: 69-69 (seriously!)
WTI crude oil futures: 87.96, -1.44 (hurrah!)
Gold: 1810.10, +20.30
Silver: 40.65, +0.74

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