The bulk of the gains were made on just two days, Monday, May 12 and Tuesday, the 27th (this week). That stocks would rip higher to start weeks two weeks apart reeks not only of systemic rot and corruption, it also might be considered by some to be fake and gay. Stocks continue to be vastly overvalued, but that doesn't matter to the horde of traders crowded into options, most of which expire on Fridays.
The game, which has driven more than a few former options players to the sidelines due to extraordinarily-high premiums, is fairly straightforward. Slick traders will select which options they wish to unload later in the week and bump those shares higher at the first opportunity, i.e., Monday, or, in the current case, the first trading session of the week, Tuesday. As expiry approaches, the choice is to either hold shares or sell them, but the options are unloaded. Ka-ching! Instant profit.
Beyond the algorithms which guide trading minute-by-minute, there are large players at major brokerages, family offices, and hedge funds playing their trade in the options market, the volume on which years ago exceeded that of the actual stock exchanges. If stocks are overvalued by multiples, the derivative options are extreme at the margin. While stocks can - and even these days, sometimes are - held for long periods, options have the unique feature of expiry, disappearing into the ether of the global financial structure, ephemeral, fleeting, and often insanely profitable.
Of course, there are multiple uses of stock, index, commodity options in a wide variety of flavors, from 0DTE (Zero days to expiry) to LEAPS (Long-term Equity AnticiPation Securities) which expire at much longer intervals than ordinary options (think years instead of months), and expert traders employ them to hedge risk and other purposes, but mostly, they're simply gambling, nothing more, which is why Wall Street is often referred to as a casino.
Options trading has become increasingly pervasive in recent years, taking advantage of the market's instability, or, volatility, which works in both directions. The preponderance of large traders in options markets makes it difficult, if not impossible, for the individual investor to profit in options. These large money-movers can exert tremendous force over individual issues, forcing option movement whichever ways they prefer. Of course, the game becomes more complex the more players involved. Winning at options, however, remains largely the province of brokerages and hedge funds.
Venturing away from the options sidetrack back into the actual market, the Shiller PE stands at 36.33, just shy of the October 2024 peak of 37.36, the third-highest levl ever. Analysts touting new all-time highs in stocks in the near term have completely disregarded fundamental analysis, and the recurring trend of earnings by major companies falling well short of year-ago measures. Focused merely on "beating the Street" estimates, the current crop of stock-pickers are more akin to momentum traders than actually finding value. Their "analysis" consists of measuring against any arbitrary number thrown out at the rubes in a manner similar to betting against the spread on a football or basketball game. "Sure, Ohio State will beat Rutgers, but will they cover the 27 points they're laying?"
This is yet another perversion of Wall Street that leads to false conclusions. Companies that beat Wall Street-generated earnings or revenue estimates but fall short of prior quarter or year-ago figures aren't actually growing at all. They're shrinking, often masked by stock buybacks that reduce the number of shares outstanding and produce better results based entirely on gaming the math as opposed to growing the business.
These are just a few of the reasons Fearless Rick and Money Daily are generally critical of stocks and stock markets. They're highly sophisticated and geared for professionals, though, admittedly, passive investors - because of the systemic gaming and perpetual yield-chasing that defines the Wall Street hustle - have profited handsomely. That's what happens in rigged environments. While the big players win big, smaller players can hitch a ride on the express train to riches. The one-percenters have grown extremely fat and happy. The small fry are still munching on the crumbs.
The lack of regulation and enforcement also helps stocks run higher and higher, seemingly every year. Nobody is going to be happy if stocks aren't growing, so government regulators - the few of them left - have become so adroit at shading their eyeballs they're practically blind to any and all abuse that occurs regularly in markets. It's why gold and silver stay down, oil stays up, and stocks keep flying higher, all without the least hint of collusion, misappropriation, or any other nefarious activity. They're all saints on Wall Street. Not a bad apple amongst them. Trust them.
In the current environment, being critical of the Wall Street hustle is about as useful - and even less popular - as shooting fish in a barrel. It's a fun, and very easy, activity, but eventually, holes shot through the barrel drain all the water, leaving dying, and eventually rotting, dead fish.
Will the day ever come that Wall Street has its reckoning, its date with destiny a la 1929, or 1987, or 2000, or 2008? It almost certainly will, but waiting it out on the sidelines isn't exactly a winning strategy. As long as the plates are spinning, there's money to be made and plenty of people to make it.
It's been 17 years since the wheels fell off in 2008, and, to some, it's nothing more than a fading bad memory or a fairy tale from some distant land long ago. Financial crises come and go, but stocks, well, they always go up, and they have, on steroids. Given the current environment, there's about as good a chance of a severe stock market correction or extended bear market as there is congress passing a balanced budget. Ha, ha. It'll never happen.
It's a party. Until it's not.
...and then there's social media.
After Treasury Secretary Scott Bessent complained to media that trade talks with China had "stalled", President Trump dumped futures this morning with the following comments:
Two weeks ago China was in grave economic danger!The very high Tariffs I set made it virtually impossible for China to TRADE into the United States marketplace which is, by far, number one in the World.
We went, in effect, COLD TURKEY with China, and it was devastating for them.
Many factories closed and there was, to put it mildly, "civil unrest."
I saw what was happening and didn’t like it, for them, not for us. I made a FAST DEAL with China in order to save them from what I thought was going to be a very bad situation, and I didn’t want to see that happen.
Because of this deal, everything quickly stabilized and China got back to business as usual.
Everybody was happy! That is the good news!!!
The bad news is that China, perhaps not surprisingly to some, HAS TOTALLY VIOLATED ITS AGREEMENT WITH US. So much for being Mr. NICE GUY!
Minutes later, the BEA released the Fed's BFF, the monthly Personal Consumption Expenditure Index (PCE), which fell to its lowest since April 2021 at +2.5%.
So, bad news, good news. Futures are tanking. This is how Americans "save." There has to be a better way.
At the Close, Thursday, May 29, 2024:
Dow: 42,215.73, +117.03 (+0.28%)
NASDAQ: 19,175.87, +74.93 (+0.39%)
S&P 500: 19,175.87, +74.93 (+0.39%)
NYSE Composite: 19,743.85, +64.91 (+0.33%)
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