... And Now, the Rally That Was... a Real Phony

Viewing the market over the past two trading sessions, a comparison to an olympic athlete might be apropos, say, that of a high-jumper, like Dwight Stones back in the day, sailing over the bar at 7'1", but then failing at the next height, and again, until finally getting his steps and takeoff and velocity all right on the third attempt, at which point he flies into Olympic history.

That's what the market appears to have done, after failing badly on Tuesday, finally getting the commitment and the volume and the lack of bad economic data points and the short sellers all lined up in the proper order to propel the Dow back over the 10,000 bar, taking the antecedent indices along for the joyful ride.

With the level of short interest in the marketplace, there's no doubt that the push higher in the final minutes of trading on Monday continued into Tuesday on the backs of the shorts, who, like it or not, have been having their way for the past two months running. Anybody getting squeezed here was either in too late or was already well in the money and made profits when they covered their bets. Worse yet, many of the same players who profited today on the upticks were the same people making hay on the way down. It's just the way Wall Street works these days, now that the buy and hold investment strategy (the one which our fathers and grandfathers used to make money slowly and honorably) have been relegated to the dustbin of market history in favor of "quant" trading and electronic push-button charting and graphing which the investment houses are now all shoving down our throats.

Sure, you can trade right from your iphone, computer or other electronic instrument, as though it's a race to see who squeeze the last few pennies on execution, but is that any way to treat your money? Not really, though the masters of the universe running the funds and brokerages are generally using OPM (other people's money), so who cares? And that's why today's rally pushed higher and higher. The money masters flicked the switch at the open in the US, abruptly turning around all of the European markets - which were suffering severe declines until late in their respective trading days - and sending US stocks soaring.

One can only be amused by the cheerleading nature of the financial press, despite mountains of data that not only suggest, but verify, that the "recovery" was something of a chimera, and that global markets are still fundamentally unsound. Reading a headline like, "European bank stress tests and U.S. retail sales lift the Dow" gives one reason to probe deeper, as we come to find out that the stress tests to be performed on European banks haven't actually been started, but that a few details about what they may entail were released. Also, we find out that the esteemed group known as the International Council of Shopping Centers reported same store sales in the ICSC-Goldman Sachs (hmm, those guys again) weekly index, which is "constructed using sales-weighted geometric average growth rates to preserve long-term consistency and is statistically benchmarked to a broad-based monthly retail industry sales aggregate" (in other words, it's bull-$^%#), was up 3.9% year-over-year, the best level since May.

Well, that being only two months ago, why did the market go straight down then? Also, one may recall that retail sakes a year ago were pretty dismal, so, being up nearly 4% is not even back to what anyone would consider "good," though it apparently works for the fraudsters and con men who populate the equity trading markets.

And, by the way, that ICSC-Goldman Sachs index excludes restaurants and vehicle sales, which, unless you have consumers who neither eat nor drive, seems to be an important element in tracking retail sales performance. They have plenty of other modifiers with which they can interpret the data seemingly any way they like, such as the "Piser Method, which was popular in the early 1930s." I guess they tried lying to people back in the Great Depression, too, and we all know how well that worked out.

One should not overlook - though everybody trading stocks apparently did today - that vacancies at large malls in the top 80 U.S. markets rose to 9 percent in the second quarter and open-air center is now at 10.9%, that data coming from the same web site as the cheery same-store sales index.

So, the market cleared the bar of 10,000, but only until maybe tomorrow, when initial unemployment claims for the most recent week are released. Maybe the government can fudge those numbers a bit, as they've been downright depressing lately. Of course, this rally could go on for another few weeks, especially since earnings begin flowing to the street in short order, and, of course, options expire on Friday of next week. Getting the picture yet?

The real kicker to the whole "rally" story is what happened to Family Dollar (FDO) after it released its earning report. Quarterly profit jumped 19%, but earnings guidance disappointed as the CEO said consumers remained wary. No surprise there, but the stock lost 8% on the day, down 3.18 to 36.26. And you thought retailers were doing well.

Dow 10,018.28, +274.66 (2.82%)
NASDAQ 2,159.47, +65.59 (3.13%)
S&P 500 1,060.27, +32.21 (3.13%)
NYSE Composite 6,685.78, +199.66 (3.08%)

Internals told a mixed story. Advancers eviscerated decliners, 5351-1212, but new lows led new highs, 205-121. Volume was at average levels for the second straight session, another indication that this was more a relief rally or a knee-jerk reaction to oversold conditions, or a combination with short-covering mixed in for good measure.

NASDAQ Volume 2,190,606,000
NYSE Volume 5,861,473,500

Crude oil for August delivery rose $2.06, after falling for six consecutive sessions, to $74.07. Gold snapped back to life, gaining $3.80, to $1,198.60, with silver adding 15 cents, to close at $17.98.

Considering that financial and energy stocks (including, notoriously, BP) - the two most beaten down groups over the past few weeks were the rally leaders, one shouldn't put too much trust in this one-day wonder rally, as it appears to be contain more bark than bite, more reflection than reality, and no fundamentally good reason to have happened at all except for a one-day dearth of economic reporting.