Monday, January 30, 2012

Abundant Skepticism in US Stock Markets

There's nothing quite like a Monday morning gap down at the open to portray the absurdity of the modern US equity markets.

Stocks opened sharply lower (the Dow down as much as 131 points by 10:30 am ET), but then staged a day-long rally ending with mostly flat to slightly lower averages that had everybody but day-traders scratching their heads.

The reason day traders would be among the least surprised by the tenor of today's trading is that gap ups and downs have become somewhat the norm over the past few years and especially so in the last six to eight months. Shrewd day-traders are out by the close and ready with new positions at every open, so, the gaps in trading from one day to the next create boundless opportunities for profit.

And who might these day-traders be? They are not, as many assume, older, well-off types who sit in front of computers in their McMansions ticking off trades. They are more than likely to be hedge funds and the brokerages of the largest banks in the world, and therein lies the wickedness and fruitlessness of trading in today's markets for the individual investor.

Today's deep dive at the open was fomented by a couple of data points from the government that saw personal income rise by 0.4% in December, but personal spending flat for the same month. That translated into a savings rate of 4% for the average American, far beyond what the powers that be would prefer, but the flat line on spending in December meant that the much-ballyhooed Christmas spending spree was more hot air and bluster than reality and the US economy is still barely treading water.

Adding insult to the intelligence of the American investor was the fact that almost every other stock market in the world took losses on the day, the euro was sharply lower against the US dollar (normally a selling signal) and the Greece debt crisis - which was supposed to be solved over the weekend - continues to deepen.

Anyone thinking that today's action in equities was a sign that the economy is on solid ground probably also thinkis Bank of America is a good investment (paging Dick Bove) and that Newt Gingrich would do well as a presidential candidate against Barack Obama.

Our markets are permanently broken, manipulated and dishonest and until there are radical changes in the ways brokerages are regulated and separated, not only from their holding banks, but from the Fed, the government and the PPT.

Until then, beware of rallies off of sharp opening declines and huge gaps up at opens as well. They're nothing but openings for traders with more skills, more money and more advantage than the average Jane or Joe, and the movements of the market are nothing more than maintaining the illusion of stability until the elections in November.

Dow 12,653.72, -6.74 (0.05%)
NASDAQ 2,811.94, -4.61 (0.16%)
S&P 500 1,313.02, -3.31 (0.25%)
NYSE Composite 7,830.42, -46.19 (0.59%)
NASDAQ Volume 1,621,418,500
NYSE Volume 3,493,897,750
Combined NYSE & NASDAQ Advance - Decline: 1983-2611
Combined NYSE & NASDAQ New highs - New lows: 218-25 (still extreme, bordering on absurd)
WTI crude oil: 98.78, -0.78
Gold: 1,731.00, -1.20
Silver: 33.53, -0.26

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