Stocks Post Gains As Turkey Currency Crisis Moves Off Front Page

Stocks rebounded sharply on Tuesday, ending a series of lower closes which saw the Dow drop four straight sessions.

Gains were made in response to the Turkey story moving off page one and onto the list of disturbing problems in the global economy. For what it's worth, thanks to the widespread use of computer algorithms, 21st century stock markets have become more a kind of knee-jerk referendum on current financial and political news, as opposed to the 20th century model with discounted future earnings.

Thus, measurements such as p/e ratios are shunned in favor of more momentum-style observations and manipulations and old models for valuations are routinely disregarded as old hat. In conjunction with the dominant 24-hour news cycle, trading in robust markets such as are available in the US and other developed countries has become a day-to-day operation for many of the greater brokerages.

No longer content with 10-20% annual returns, the proliferation of options, futures, ETFs and other market-distorting, derivative opportunities offer potential for hedging, pair trades, and a myriad of other exotic strategies, schemes, and systems.

Thus, when a currency fails, such as happened in Venezuela and is currently underway in Turkey, markets are prone to react with immediacy before returning to the status quo.

That's the story with today's gains, though the larger issue remains unresolved. The markets have had their say and now move on to the next big thing. This manner of shoulder-shrugging complacency is what makes markets more and more fragile, as, with each big event that has an initial response but no resolution, the underlying morass of problematic financial issues piles higher and higher.

Since the financial crisis of 2008-09, markets have increasingly operated inside a vacuum, fitted with appropriate blinders to geo-political changes and financial disruptions. It's assumed that central banks, which now control almost all of global finance, can handle any issues that may pop up, either with massive buying, interest rate adjusting, or soothing words from the top-most chiefs.

It's an odd way to make a buck, but that's the norm, for now.

Dow Jones Industrial Average August Scorecard:

Date	Close	Gain/Loss	Cum. G/L
8/1/18	25,333.82	-81.37	-81.37
8/2/18	25,326.16	-7.66	-89.03
8/3/18	25,462.58	+136.42	+55.05
8/6/18	25,502.18	+39.60	+94.65
8/7/18	25,628.91	+126.73	+221.38
8/8/18	25,583.75	-45.16	+176.22
8/9/18	25,509.23	-74.52	+101.70
8/10/18	25,313.14	-196.09	-94.39
8/13/18	25,187.70	-125.44	-219.83
8/14/18	25,299.92	+112.22	-107.61

At the Close, Tuesday, August 14, 2018:
Dow Jones Industrial Average: 25,299.92, +112.22 (+0.45%)
NASDAQ: 7,870.89, +51.19 (+0.65%)
S&P 500: 2,839.96, +18.03 (+0.64%)
NYSE Composite: 12,835.31, +71.65 (+0.56%)

With Rubio and Corker Backing Tax Plan, Stocks Take Off

Maybe the scuttlebutt about Senators Marco Rubio (R-FL) and Bob Corker (R-TN) being persuaded to vote for the long-awaited tax reform plan circulating in the congress caused stocks to career higher on Friday, but the more likely catalyst was probably much more mundane: the expirations of options on a quad-witching day.

There were certainly a boatload of long bets on individual stock and index options, and, since the market is so overtly controlled by a handful of "whales" it was simple business to boost stocks throughout the day no matter what the news of the day portended.

Anybody who doesn't believe the market is rigged to go higher - incessantly - in support of central bank plans to intercede in global markets by buying assets and printing fiat, is simply fooling themselves.

Thus, bears have been declawed, pension funds and IRA are becoming whole (or, at least less underfunded) and top stock holders have been handed capital gains on a silver platter with little to no effort or brainpower on their parts.

Since congress appears poised to pass the pending tax legislation in the coming week, investors are sure to get a gift-wrapped Christmas present in advance of the give-away holiday.

2017 will go down in history as one of the best ever for stock market investors. The major averages are well into the green and some individual stocks are boasting gains of 30, 40, 50 percent or more.

Happy Holidays. Keep Dreaming.

At the Close, Friday, December 15, 2017:
Dow: 24,651.74, +143.08 (+0.58%)
NASDAQ: 6,936.58, +80.06 (+1.17%)
S&P 500: 2,675.81, +23.80 (+0.90%)
NYSE Composite: 12,699.68, +70.61 (+0.56%)

For the Week:
Dow: +322.58 (+1.33%)
NASDAQ: +96.50 (+1.41%)
S&P 500: +24.31 (+0.92%)
NYSE Composite: +56.62 (+0.45%)

Stocks Stumble As Marco Rubio Voices Concern Over Republican Tax Plan

Appropriately, with the latest installment of the "Star Wars" franchise opening in cinema theaters around the country, Wall Street sensed a disturbance in the "force," the force being Janet Yellen and her merry band of storm trooping central bankers, the disturbance being upstart senator "little" Marco Rubio, who inadvisably pondered that he may not cast his vote in favor of the magnificent GOP tax plan that's been bandied about the halls of congress for months.

The former presidential candidate and current senator from Florida, Rubio voiced concerns over a minuscule detail in the overall grand scheme, the child tax credit, and on Friday morning made it clear that unless the amount of the credit that is deductible ($1,100 of $2,000) is increased, he's voting against the plan.

Notwithstanding Rubio's need to be seen, heard and appear important on occasion, his grandstanding is purely designed as entertainment value over the weekend for the cable news outlets. A final rollout of the bill and votes will come next week, just prior to congress' two-week holiday vacation.

Also adding to the folly is John McCain, who was hospitalized this week with complications from his cancer treatment, may not be present for a vote, should his condition worsen. Republicans cannot survive more than two defections, and Senator Bob Corker, the statist senator from Tennessee is staunchly opposed to the measure, purely out of hatred for president Trump.

Failure of the bill's passage would be a blow to Wall Street being that the measure approves a reduction of corporate taxes from 35 percent to 21 percent, something for which major corporations - many of which pay little to no federal tax already - have been lobbying for years.

Thus, with doubt overshadowing the happy passage of bellwether legislation, stocks took a notable turn for the worse on Thursday. The loss ended a string of five straight days higher on the Dow, and an overall run-up from 23,200 to beyond 24,600 over the past month.

As is the usual case, there's probably nothing about which to worry, since the Fed has Wall Street's back, front, and middle, and little tolerance for anything more than a few hundred point drop on the hallowed Dow Jones Industrial Average.

With Christmas a little more than a week away, neither congress, the Fed, nor Wall Street want to appear as Scrooges or Grinches, much less a poor likeness of Darth Vader or the death planet, especially with heavy upside bets on options and futures, which expire today. Trying not to mix metaphors - but failing badly - Friday is a quad witching day.

Happy trading, and happy Friday.

At the Close, Thursday, December 14, 2017:
Dow: 24,508.66, -76.77 (-0.31%)
NASDAQ: 6,856.53, -19.27 (-0.28%)
S&P 500: 2,652.01, -10.84 (-0.41%)
NYSE Composite: 12,629.07, -70.41 (-0.55%)

Mixed Stocks Ahead Of Quad-Witching; Fed Gearing Toward Recession

For the second straight session, stocks closed mixed, with the Dow and S&P finishing in the red while the NASDAQ and NYSE Composite registered marginal gains.

Essentially, markets were flat as the trudge through June continues.

As the week draws to a close, Friday looks to be a troublesome day, owing largely to options expiration and the fact that with the exception of the Dow, the major indices are right back where they began the month.

This condition - known as quadruple witching - may result in increased volatility, and, with prices flat, many stock options and futures may close without redemption, i.e., losses.

Quad witching is the simultaneous expiration of options and futures tied to individual stocks and stock indexes occurring on the last month of each quarter.

While the name may sound frightening, it often is not, especially when stocks are gaining, which, over the past eight years, has been more often than not. This quarter may prove a hurdle too high, sending stocks screaming lower.

Psychologically, losing money on a Friday sends traders home to unhappy weekends with thoughts of carnage fresh in their minds, so Monday's trading may prove more prescient in terms of market direction.

Meanwhile, bonds are telling. The 10-year note slipped to 2.15 on Thursday, with the 30-year bond holding steady at 2.72. The curve has continued to flatten, and that could actually be due to the Fed's tightening. With the overnight federal funds rate at 1.00-1.25 - the highest in nearly a decade - the Fed may be - inadvertently or otherwise - prompting the US economy into a recession.

GDP growth continues to flag and employment is stagnant. Raising rates during a period of slow to no growth makes sense only to Federal Reserve governors or others who bear no consequences for their actions.

Friday's action in the markets deserves close attention.

At the Close, 6/22/17:
Dow: 21,397.29, -12.74 (-0.06%)
NASDAQ 6,236.69, +2.73 (0.04%)
S&P 500 2,434.50, -1.11 (-0.05%)
NYSE Composite: 11,712.52, +16.24 (0.14%)

Stocks Bounce, But Rally Is Short-Lived Following MLK Holiday

Oddly buoyed by bad data out of China (missed GDP estimates at 6.9%), stocks made a half-hearted attempt to stem some of the losses it took in the first two weeks of the year, rising by about one percent across the three major indices early, but the rally could not find its legs and sellers soon took over, sending the NASDAQ into negative territory for the ninth time in 11 sessions this year.

While there's still eight trading days remaining in the month, the January Barometer merits mention at this juncture if only because the month, as a whole, seems to be lost.

Readers will be reminded that the January Barometer - which posits that "as goes January, so goes the year" - has a roughly 90% correlation. The only question now for traders seems to be not whether the year of 2016 will be a bad one, but just how bad it will end.

Indications continue to suggest that the correction is far from over and the potential of an outright bear market is only being kept off the table due to some select large cap stocks. 65% of stocks on the S&P 500 are already in a bear market, i.e., off 20% or more, and the Russell 2000 is down more than 20% from previous highs.

Equities may have gotten a one-day reprieve from some non-committal buyers of the dip, but that strategy seems to have worn out its welcome. Seasoned traders are becoming more and more risk-averse, seeking the safety of large caps with steady dividends, strong balance sheets (there aren't many), and, as the 10-year-note is telling us quite plainly, fixed income investments.

Today's volatility included a 270-point round trip for the Dow, which was down more than 100 points midday. Wednesday may prove more challenging as markets approach the traditional options expiry on the third Friday of the month, at the end of the current week.

Today's Closing Quotes:
S&P 500: 1,881.33, +1.00 (0.05%)
Dow: 16,016.02, +27.94 (0.17%)
NASADAQ: 4,476.95, -11.47 (0.26%)

Crude Oil 28.59 -2.82% Gold 1,090.70 +0.01% EUR/USD 1.0908 +0.17% 10-Yr Bond 2.0350 +0.10% Corn 368.50 +1.45% Copper 1.97 +1.11% Silver 14.07 +1.29% Natural Gas 2.08 -0.76% Russell 2000 994.87 -1.28% VIX 26.05 -3.59% BATS 1000 20,041.25 -0.13% GBP/USD 1.4160 -0.66% USD/JPY 117.6320 +0.18%

Stocks End Week with Gains (as usual); Do Weekly Options Drive the Markets?

Stocks finished the week with outsize gains on a virtually dead news day, which makes one turn to head-scratching and contemplation over not only the general direction of the market, but why stocks perform better on Fridays as opposed to, say, Mondays, which, of late have been among the worst days on a week-by-week basis.

It might have something to do with the advent of weekly options contracts - a relatively new market development - in which "bets" are placed on the direction of everything from stocks, to EFTs, to entire indices.

Since Wall Street is such a crooked, rigged casino type of operation, the club of insiders which invent such derivatives cooked up weekly options - which expire every Friday - as yet another way to skin the hapless rubes who aren't content with the usual durations of one, two, three, four months or longer.

Weekly options are nothing but pure, unadulterated gambling on direction, just about the same as betting red or black at a roulette wheel, but, a peek at direction on Mondays (when positions are initiated) and Fridays (when they are closed) over the past ten weeks reveals an unsettling pattern.

Using the Dow Jones Industrials as our test case, beginning with the 18th of June (a Monday) and continuing the series through today, the tally is remarkably consistent:

Mondays: 1 Up; 9 Down
Fridays: 8 Up; 2 Down

Amazing! Isn't it? If one can count on Mondays and Fridays being the only significant market moving days, trading - especially in options contracts - becomes almost a predetermined routine, something that could be gamed by a relatively simple algorithm.

Oops! Did we let the cat out of the bag? Since algos, via HFTs perform between 75 and 90% of all trading in the markets, could it be that the Goldman Sachs and Merrill Lynch's of the world are doing exactly that from the comfort of their prop desks? One can only imagine the traders, feet propped up neatly on their desks every Monday morning, programming in massive sell orders on various stocks while simultaneously sending the algos out to buy calls on the very same equities.

If that's the case, these traders are probably spending most of the midweek out on the golf course or the yacht or partying with their rich buddies in the Hamptons or other secret enclaves of the privileged class. Why work, when you have concocted such a simple trading regimen that only needs your attention twice a week? Even better, these prop jockeys are probably initiating positions and closing out trades with commands from their cell phones while sipping mai tais by the pool or at the beach.

Life just can't get any better, can it?

The worst part about this story is not how the rich enjoy their lives without working, but the idea that there's likely a kernel of truth to it.

Almost as good as farming, where the common wisdom is that farmers plant in the spring, harvest and sell in the fall and vacation all winter, these prop traders are just taking loafing to an all new level of expertise and functionality.

Life is so easy! BTW: Silver closed at a 3 1/2 month high today. Thank you, Blythe Masters and JP Morgan.

In keeping with our ongoing, sporadic tradition of musical thematic revivalism, perhaps the Rolling Stones' You Can't Always Get What You Want, from their 1969 album Let It Bleed is appropriate.

Have a great weekend and remember to be selling on Monday.

This is the original cut from Keith, Mick and the boys. It doesn't get any better.



Dow 13,157.97, +100.51 (0.77%)
NASDAQ 3,069.79, +16.39 (0.54%)
S&P 500 1,411.13, +9.05 (0.65%)
NYSE Composite 8,047.48, +36.04 (0.45%)
NASDAQ Volume 1,326,204,750
NYSE Volume 2,581,308,750
Combined NYSE & NASDAQ Advance - Decline: 3459-1968
Combined NYSE & NASDAQ New highs - New lows: 113-48
WTI crude oil: 96.15, -0.12
Gold: 1,672.90, +0.10
Silver: 30.62, +0.17

Numbers Racket: Greece, Euro, Apple, Transports and 100 Dow Points

Let's get real here.

Raise your hand if you think Greece is NOT going to default.

Very well. Maybe the rest of you with hands on hips or in pockets will appreciate the news out of Europe this morning, which somehow managed to pump futures toward a strong positive opening.

What's that? Even though Dow futures were up more than 80 points before former Treasury Secretary Hank (martial law) Paulson appeared on CNBC for the usual softball interview and were up 47 points just seconds before the open, the Dow only managed an initial gain of... hmmmm, less than 20 points.

Eurozone's 17 nations' (non) growth rate for the 4th quarter of 2011 was -0.3, the only countries showing gains in GDP growth being France and Slovakia.

Five countries in europe are already in recession. No surprise here, as Greece, Belgium, the Netherlands, Portugal and Italy have experienced two consecutive quarters of GDP decline. The one country everyone has an eye on is Germany, where output for the quarter fell by 0.2%, because the Germans have been the only country in the region showing any sign of elasticity and ability to weather the financial storms.

However, the rest of the Eurozone is dragging Germany's usually strong industrial sector down with the rest of the continent, a development that could prove disastrous as the EU plods through a troubling 2012.

Stocks took a spanking today in the US after the aforementioned recession news and then the communique out of Brussels from the esteemed EU finance ministers (a Baptist minister, a Catholic priest and an EU finance minister walk into a bar... oh, never mind) reminded the assembled money watchers worldwide that they are experts at procrastination and posturing.

While yesterday's commitment letter from Greek conservative leader Antonis Samaras stated that he would go along with the proposed - and passed by the Greek parliament - austerity measures, the potential future leader of Greece (give him about 6 months before he is bought off and retires, if he even wins the April race for Premier) contained a small caveat, saying he might reconsider, once, of course, the authorities deliver the 130 billion (or maybe it's more like 202 billion) Euros promised by the supra-government of the EU.

What happened today could best be described as controlled demolition. While the Dow was subsumed, hovering from 15 to 35 points in the red, the NASDAQ was wildly positive, though 90% of the gain was due to just one stock, Apple (APPL), which exploded in a number of ways on the day.

First, Apple rocketed to an all-time high of 526.29, but closed the day at the somewhat pedestrian level of 497.67. That's a pretty big round-turn, even for a stock with such a heady valuation. The decline was magnificent, falling 20 points in just the noon hour, and stumbling to a nearly 12-point loss in the remainder of the day. Volume was more than four times the average daily volume (12 million shares) at 53,457,212.

But Apple was just the NASDAQ story. The Dow charted its own path, guided by the Euro-dollar trade. The Euro slumped and finished below the psychotic 131 level, a number which is absolutely meaningless unless you're swapping currencies or considering travel to the doomed continent. But, stocks have followed the Euro-Dollar relationship like clockwork this year. Euro up, US stocks up, with the converse also true. The real value of the ephemeral Euro is all in the mind and to which equally worthless paper currency to which you compare it. If one would be so bold to compare it to some commodity - say, gold - well, a Euro won't buy you a single grain and it's gotten worse throughout its 11+ year life with each turning of the calendar.

So, the Dow set down at the close with its worse loss of 2012, which is not so much a surprise, being that the index (and all the other majors) has overheated in what has been an unusually-warm winter. But the Dow could just not surrender 100 points on the day, despite it being down 125 points at its worst level and down 108 points only one minute prior to the close. Perhaps that number (-100) has meaning to some people, but for the rest of us, -97.33 will just have to do.

What is alarming and scary (like Europe isn't enough of a fear factor) is the action in the Dow Transports, which suffered a two percent decline on the day, easily outstripping the widely-followed indices.(please have a gander at the 1 year chart with the 80% down-spike in November)

Another unpleasant thought concerns the timing of this week's reversal of fortune, just two days prior to options expiry, normally the strongest and upward-tilted week of any month in this Ponzi-like market scheme. Today's volume was also quite strong across all indices.

If stocks aren't making gains just prior to options expiry, then something very wrong is happening behind the scenes. It could be as simple as the market being overbought, or waking up to the awful European reality or the threat of war with Iran which looms larger each passing day.

Then again, it could just be that the low level of market participation has the major traders now drooling over each other's lunches. US stocks have been on a tear since October and the time and sentiment are ripe for a nasty correction.

A clue could come the day the Dow closes with a loss of more than 100 points, though that might prove to be a day too late and many billions of dollars short. Today's near-100-point loss should provide more than enough caution to everyone.

Keep a close eye on gold, and especially, silver, which has underperformed for the past two weeks. Any sustained gains in the precious metals should serve notice that there's something big brewing.

Dow 12,780.95, -97.33 (0.76%)
NASDAQ 2,915.83, -16.00 (0.55%)
S&P 500 1,343.23, -7.27 (0.54%)
NYSE Composite 7,998.65, -30.97 (0.39%)
NASDAQ Volume 2,036,710,750
NYSE Volume 4,045,495,750
Combined NYSE & NASDAQ Advance - Decline: 2267-
Combined NYSE & NASDAQ New highs - New lows: 264-23
WTI crude oil: 101.80, +1.06
Gold: 1,728.10, +10.40
Silver: 33.41, +0.06

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

Quotes for a Friday Afternoon

Before getting to the important part of this posting, a quick recap of the day on Wall Street is the usual requisite, so...

Here's what happened:

Dow 10,607.85. +13.02 (0.12%)
NASDAQ 2,315.61, +12.36 (0.54%)
S&P 500 1,125.59, +0.93 (0.08%)
NYSE Composite 7,154.64, -14.84 (0.21%)
NASDAQ Volume 2,174,708,250
NYSE Volume 4,437,062,000

Not much, even for a quad-witching options day, which is supposed to be "volatile." US markets are, if anything, operating on borrowed money and borrowed time. The money's been borrowed from the Fed and the time is just a matter of when somebody with a large enough stake says, "good-bye." It's a game of chicken and nobody wants to be the last one in the room.

Note that the NYSE, the broadest measure of equities, was the only one down, and also the only index usually not quoted by the major news services.

Advancing issues beat decliners, 3321-2395, but it's mostly just churning. New highs maintained their daily edge over new lows, 413-58, another meaningless metric, due to the large, unannounced number of issues de-listed in the past six to nine months. Volume was higher than normal, but still not of any degree anyone would get excited about. Most of the additional trading was due to the aforementioned quadruple-witching in options.

There was probably more action at Belmont Park than on the floor of the NYSE, and it was certainly more fun to watch.

Oil was hammered down another 91 cents lower, to $73.66, but remains stuck in a trading range, emblematic of the global economic condition. Gold closed up $3.70, at $1,275.60, another all-time high. Silver gathered only a nickel higher, to $20.79.

Then there was word on the housing market, from a number of economists, including the widely-quoted Mark Zandi of Moody's, who's been proven wrong so many times that most people have stopped counting.

Zandi believes housing prices will drop another 5% by 2013, and then says, "After reaching bottom, prices will gain at the historic annual pace of 3 percent..." He's probably wrong on the magnitude by a measure of three or four times. Residential real estate likely has 15-20% more to decline. As to his predicted annual growth pace of 3%, it's already well-established that home prices normally rise by about one per cent, not triple that.

Somebody ought to hand Zandi a golden parachute and shove him off a skyscraper so he can stop deluding himself that he's making sense. After all, he does work for one of the rating agencies which said all that toxic, sub-prime, re-packaged, securitized mortgage garbage was AAA-rated. The guy ought to be in jail rather than on CNBC.

The upshot is that the banks have such a monster of a problem on their hands that they and the courts cannot handle it in a reasonably timely manner. The absolute implosion of the US housing market has left a crater in the economy the size of Rush Limbaugh's ego, and that's enormous. The basic paradigm for buying a house these days is to offer 30% below the asking price, and see how badly the owners - either a bank or a homeowner or a combination of both - want out of it.

Then try and get a mortgage. A million more laughs.

The glut of homes - unoccupied, unrented, in need of repair, under-water financially - is mammoth and everywhere. Count on a minimum of three and probably more like five more years of pain, price declines and associated nonsense about finding "the bottom," which will only be reached when the banks realize that it's not worth their time or expense to pursue further exposure and foreclosures and they become the party which "walks away." When the banks no longer want the properties, no longer feel there's any gain in bleeding consumers dry with fees and interest, and the property taxes, maintenance and insurance exceed what they can hope to recover on unsold inventory, there will be a bottom, and it's going to be one heck of a lot lower and a heck of a lot further out than most people anticipate.

Too many houses at prices too many people can't afford. Simple math.

Following are the promised quotes. Have a lovely weekend.

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

-- Thomas Jefferson, (Attributed)
3rd president of US (1743 - 1826)

---

"Permit me to issue and control the money of a nation, and I care not who makes its laws."

-- Mayer Amschel Rothschild

---

"Income tax is nothing but wage slavery. If you have payroll deductions, you are a slave. Only way to fix it is for everyone to quit, or, as in Europe, the whole nation goes on strike. It won't happen here. Americans are too stupid and too frightened by their own government. I am not. I could care less. Let them come and take my house and my belongings. I will start over, stronger. I love this country, but I hate the people who run it."

-- Ed.

Why Stocks Were Up, in One Word

I'm going to keep today's notes brief, since it's a beautiful summer day and the market is, as usual, defying all logic.

Were stocks ahead because key economic data was better than expected? Possibly. The PPI for July was up 0.2%, with the core up a whopping 0.3%, allaying fears of deflation for the moment. Housing Starts and building permits were somewhat of a disappointment, however, though July industrial production was up by a full percentage point and Capacity Utilization stood at 74.8%, up from 74.1% in June.

Those numbers were benign, and volume was once again extremely sluggish, so there's only one reason stocks went up today: options. Or, more accurately, the expiration of stock options this Friday.

In recent trading - over the past 7 months which we bothered to check - the major indices have almost always shown some kind of gains early in the week leading up to options expiration, like clockwork, except in May, when stocks and the economy were actually showing real strain from problems. It's pretty simple, and an easy strategy for market-timers. But, is it investor sentiment or manipulation, and, does it matter?

Short term, trading moves matter, especially when you have money at risk, as in the options market. Long term, the blips obtained in weeks of options expirations or the weeks preceding them are more noise than valuable data points. As for whether the pattern arises out of investor sentiment or manipulation, which have been becoming more synonymous of late, the latter seems a too-obvious choice, but there it is, laid out for everyone to see.

Supposing you had some money riding on certain strike points, or you could make money on gains, and, if you were a major investment house, like Goldman Sachs, BofA, et. al., with tons of excess capital sitting around gathering dust, wouldn't it behoove you to invest some of that idle capital in the stocks you need to rise, thus ensuring short term gains in your options trading? Absolutely. Do the big firms do that? Positively.

While they call it astute trading discipline, others might figure it a little less than honest poker, but, since options are highly unregulated conveyances, nobody bothers to make a squeal about it. For the investor, it makes for a simple calendar rule: buy stocks near the end of the month or early in the month, preferably the first week, because the price you pay will almost always be lower than it will approaching options expiration.

And that's why stocks were up today, and the only reason why. For more proof, just take a gander at the volumes, which were again at "help me, I'm drowning" levels. The low volume regime persists, so higher closes, especially major advances, like today's, should be weighted accordingly. Better yet, compare the highs of the day to the close. A bit of a selloff there in the last hour, the tell-tale sign of options sales and/or redemption, and plenty of play on the intra-day movement. The Dow lost about 70 points in the final hour. Healthy markets don't do that, they close at or near the highs. Conclusion: this was yet another manipulated trading move; market weakness still exists; nobody is really buying.

Dow 10,405.85, +103.84 (1.01%)
NASDAQ 2,209.44, +27.57 (1.26%)
S&P 500 1,092.54, +13.16 (1.22%)
NYSE Composite 6,959.79, +88.21 (1.28%)

Naturally, advancers beat decliners handily, 5008-1490. New highs soared past new lows, 335-80.

NASDAQ Volume 1,631,266,000
NYSE Volume 4,241,545,500

Commodities were mostly higher. Oil traded up by 53 cents, to $75.77. Gold gained $2.10, to $1,226.60. Silver added 17 cents to $18.59.

Stocks should continue this pattern for another day or two, probably peaking on Thursday, which would be a great time to go short the market. By Monday of next week, everything should be trading at lower levels, if history proves correct.

Quad-Witching Became a Quad-Whimper

Quietly ending one of the more unusual weeks on Wall Street, Friday's normally highly-anticipating quadruple witching (market index futures, market index options, stock options and stock futures expiring) ended with abnormally light volume over the final two trading days.

This is a disconcerting episode for traders, as volatile activity is the norm on these days, and the lack of volume suggests that the market is experiencing a severe lack of confidence, even among high-risk types who usually deal in these issues. Also to be considered is the quality of Tuesday's exceptional rally (the Dow gained 214 points), in that much of the options trading which normally could have held until later in the week, was actually conducted on this one, seminal session, making more than just a few traders wonder exactly why stocks were so sought-after on just that one day, as the rest of the week was flat and devoid of velocity.

The consensus being positive on that one day, and then nothing, brings up some interesting propositions, none of them particularly positive going forward. Were insiders moving early to avoid what they might consider an imminent turn? Was the rally thus concocted wholly on the backs of options and futures trades, rendering any gains as temporary flights of fancy? Could this just be a sign of the times, with Summer fast approaching, traders simply lost interest?

Supposing the latter of those preceding questions to be the best of a bad lot, good reasons for owning stocks generally have not appeared. Thus, with everyone cautious, the potential for a panic run on the sell side could occur out of thin air, just like much of the funds used to purchase stocks in the first place.

This kind of sentiment also bears the deflationary trademark, in which buyers will defer purchases, thinking prices will be lower tomorrow, the next day, the day after that, and so on, and, in that regard, we are in complete harmony with the instinct of the herd. Deflation manifests itself in many ways, but one clearly recognizable feature is sluggish trade, and if this week's action can't be described as sluggish, then nothing can.

As I've said previously, the market has three to four more weeks of waiting for 2nd quarter earnings reports, and the void may be filled with sell orders or simply a lack of meaningful movement. Whether this analysis is correct or mere whistling in the wind will be fairly known by the end of trading on Tuesday of next week. The market is seeking direction and the initial two days after witching days of any variety are generally reserved for reloading, shoring up strong positions and shedding weaker ones.

Dow 10,450.64, +16.47 (0.16%)
NASDAQ 2,309.80, +2.64 (0.11%)
S&P 500 1,117.51, +1.47 (0.13%)
NYSE Composite 6,988.24, +6.20 (0.09%)

Advancing issues slipped past decliners again, 3615-2861. New highs beat back new lows, 160-77.

NYSE Volume 5,356,428,000
NASDAQ Volume 2,044,128,250

Crude oil for July delivery gained 39 cents, to $77.18. Gold made a new high, gaining $9.70, to $1,257.20, while silver was also impressive, adding 41 cents, to $19.18.

Stocks Continue to Pop on Production; Gold Soars

There was no slowing down the upside freight train as the major indices posted their 8th gain in the past 9 sessions and third straight winner at mid-week.

All sectors were positive, led by conglomerates, financials, basic materials and capital goods. Economic news included improved industrial production, up 0.8% in August, with capacity utilization gaining to 69.6% from a revised July figure of 69.0. CPI was benign, up 0.4%, with the core number up 0.1. Continuing a string of positive economic data, investors clambered back into the markets for more of the financial feast currently unfolding.

That this rally has not only legs, but now, euphemistically, wings, and is soaring, is remarkable considering where we were just a year ago, on the brink of global financial collapse. Through whatever means, the Fed and Treasury, working alongside central banks from countries around the globe, managed to avert severity and bring markets back to functional, realistic levels. How much further economic recovery can bring the market at this juncture is still a bit problematic and stressing, though the general consensus has now shifted to extreme positivism.

At some point, the market will balk and give back some share of profits, but timing that event is a foolhardy endeavor. Those who blanch at the first signs of weakness are likely to leave money on the table as any downturn will probably be short-lived and small. While some are calling this a stock-pickers market it appears to be anything but, as shares of just about anything have participated in this rally. Companies with clean balance sheets, strong management and stable product or service lines have fared the best. Companies are once again executing on their business plans with the worst fears behind them. Any money that has not participated as of yet has missed some of the most substantial gains though there are surely more to come.

The absence of any competition for stocks is also fueling the rally. So long as the Fed keeps rates at zero, this kind of activity in markets is to be expected. Money must go somewhere and the best returns are currently in equities.

Dow 9,791.71, +108.30 (1.12%)
NASDAQ 2,133.15, +30.51 (1.45%)
S&P 500 1,068.76, +16.13 (1.53%)
NYSE Composite 7,038.14, +121.07 (1.75%)

Simple indicators confirmed the headline numbers from the averages. Gainers beat losers by the widest margin in weeks, 5009-1499, while new highs ramped up dramatically, to another multi-year daily high of 586. There were 97 new lows. Those high-low numbers should begin to become even more dramatic, as stocks retrace the collapse of last year. This trend has completely reversed, signifying a new, healthy, bull market. Volume on the day was also at elevated levels. Stocks are close to overheating, though nobody will sound an alarm when they do. The risk of another tumultuous collapse has been all but washed out. Confidence is returning in a very big way.

NYSE Volume 1,581,164,000
NASDAQ Volume 2,738,888,000

Commodities also joined in the fun. Oil kicked up another $1.58 at $72.51, but the metals were the real story, with gold gaining $13.90, to $1,020.20, and silver up another 43 cents, to $17.43. Gold is once again being viewed as a solid hedge against the declining US currency and all the government deficits and guarantees of financial institutions that have fueled the comeback. Gold could easily top $1200 in coming months as there is still a good deal of work to be done on the overall global economy. Even eventual dollar stability should not be able to stop the run in gold and silver through the next 12-18 months.

This rally train left the station long ago, and it's running at nearly full speed. Options players have also enjoyed a heyday, with expiration on Friday. With that in mind, a slight pullback for profit-taking would not be surprising, though, honestly, in this environment, it may only last a manner of minutes.

An Object Lesson in Options

Today being a triple (or, by some standards, a quadruple) witching day, in which stock options, futures and index options all expire, it was amusing and insightful to watch the activity of the markets and the money flows as the week progressed. Triple witching happens every quarter, in the final month of the quarter on the third Friday of the month. Usually markets are quite volatile leading up to the date, and when the expiration of options occurs in the middle of a rally or sell-off, the action can be wicked.

This week had a couple of added bonuses in the form of the AIG flap amid the continuing economic crisis and the regular FOMC meeting and their release on Wednesday. The overhang of AIG bonuses and revelations of just how much money the Fed funneled through the conduit to counterparties was fodder for Monday and Tuesday, a little early for the options players to make serious moves. In fact, most were holding or still buying, staking out positions for the kill later in the week.

On Wednesday, at 2:15 in the afternoon, the Fed announced that they would be buying up to $300 billion in Treasury Bills, in essence creating money out of thin air to buy bonds. It's a desperate strategy which has never resulted in anything other than rampant inflation. But the Fed and the government isn't worried about that now, they just want to prevent complete collapse (they don't know that they, by their very actions, are going to cause it) of the financial system.

Mind you, the financial system in this country is so horribly broken by decades of intrusion, intervention and manipulation, one can scarcely believe stock prices at any point. As they are chimeras by nature, stock prices can be moved around by people with lots and lots of money. People like the Federal Reserve, the government and major banking and trading operations on Wall Street.

So, when the Fed made their dramatic announcement on Wednesday, the traders (crooks or thieves, if you like) were at the ready, pushing the Dow Jones Industrials up 150 points in just 5 minutes time, added more after that and then sold off a bit into the close. I said, in that day's entry, that the smart money was already out and the trading rhythm of Thursday and Friday bore me out (I also made a few bucks on the moves).

On Thursday, the Dow gapped up at the open near the previous day's high, but immediately retreated and soon was touching down in negative territory, repeatedly bouncing off 7400, which developed into a serious support level for the full afternoon and into the next day. That it was plucked out by traders as a line to defend was plausible, since the high on Monday was 7428 and the close on Tuesday was 7395.

Perfectly and somewhat hauntingly, the average bounced off this level repeatedly from around 11:30 am on Thursday to just before 1:00 pm on Friday. Every time the market began to pull below that level, there was a wall of support to push prices back up. That was until just before 1:00 pm Friday, when people holding options contracts began worrying, because holding until expiration either means you get nothing or you have to buy or sell a specific equity at your strike price, so the action was just about done unwinding.

It was at that point that 7400 was breached completely in one death-dive. The Dow fell over 100 point in the next hour and change, and, after 2:00 began heading for 7250, at which point bottom fishers came in and short covering began in earnest. Eventually, however, the die had been cast. The options traders had made their money, trapped their counterparties and escaped, apparently off to enjoy the first weekend of Spring out at the Hamptons or up in Connecticut. The Dow closed, as did the other indices, close to its low of the day.

Dow 7,278.38, -122.42 (1.65%)
NASDAQ 1,457.27, -26.21 (1.77%)
S&P 500 768.54, -15.50 (1.98%)
NYSE Composite 4,832.13, -105.09 (2.13%)

For the session, internals were indicative of the general direction. Declining issues outpaced advancers, 4582-1821. New lows opened a bit more space between themselves and the paltry number of new highs, 79-10. The highs-lows are still in a range from which they can roll over, but as has been the case in the previous six or seven times its happened since October 2007, it will only be for a day or two before the bull reverts to a scared calf as ravenous bears threaten its life.

One caveat is that some stocks are looking at 52-week highs that aren't that high. The decline had already begun by this time last year, though not in great earnest. The bear market rally (whether we are still having one is now very much in doubt) could run for months, though I personally doubt that it will last even a couple more days and definitely not past mid-April. In any case, the daily new highs and new lows is a metric which has provided incredibly strong insight into market movement, at times even predicting major moves and always true.

Volume on Friday was very high, higher than even Wednesday and Thursday. Expect the trading activity to fall off somewhat over the next two weeks as traders will be listening for early signs from companies considering 1st quarter results. Of course, the severe crisis of confidence, credit and money will continue to reverberate through the canyons of Wall Street and beyond.

One note on today's volume. There were more trades on the NYSE than the NASDAQ, the first time that's happened in a very long time (2002 to the best of my recollection).

NYSE Volume 2,465,968,000
NASDAQ Volume 2,421,536,000

Commodities were subdued, relative to equities. Crude oil lost 55 cents, closing at 51.06. Gold was off $2.60, to $956.20. Silver tacked on another 30 cents to finish the week at $13.82. Long term holders of precious metals are sitting pretty.

As for whether the rally will resume on Monday, there's quite a bit of evidence that it will not. Stocks were boosted largely for traders to rack up profits in options, as expressed above, and the last two days of trading have both ended up losers. Since the indices had been pumped quite a bit higher in a relatively short period of time, there may be a lull in the action for the next 2-3 weeks, but then earnings and guidance will begin to dictate the direction and it's not likely to be very good. Also, there's surely going to be more money being thrown around, scandal, and other disruptions, so the mini-bull we've experienced over the past two weeks may fade fast.

Alcoa Rumors Propels Dow 102 Higher

There are days that bring one to wonder where investors get their ideas and then there are days like this.

Amid speculation that a pair of Australian mining companies - BHP Billiton Ltd. and Rio Tinto PLC - each plan to offer as much as $40 billion to purchase American aluminum giant Alcoa (AA), the Dow Jones Industrials leapt out of the gate at the opening bell and never looked back.

The story, attributed to the London Times, citing unnamed sources, set the Dow ablaze in New York.

By the end of the day (after the market closed), the Washington Post was reporting that "few analysts believed the U.S. aluminum giant was about to be gobbled up."

My theory: These kinds of things are dreamt up and ginned up by sharpies inside the brokerages to make a quick killing in an overnight options trade and have little, if any, basis in reality. They're especially attractive during slow news periods.

Alcoa closed just a shade under 33 on Monday, but opened above 35 on Tuesday, peaking at 36.05 within the first hour of trading. It ended at the day at 35. February options expire on Friday.

While there's nothing ostensibly illegal about planting a story (though it's a thin line), it does create an uneven playing field for those in the know. Getting Alcoa to move 2 points on the open is no mean feat. The stock has ranged between 23 and 38 for nearly the past 4 years. It's not one of the more volatile stocks in the game. In fact, it's rather a dull trading vehicle.

The moral of this particular story is that market manipulation comes in all shapes and sizes. And, while no one is immune, a fraud can usually be spotted relatively easily.

If traders are this desperate to make a buck, we could be witness to the final snorts of this 52-month long bull market. Only the most hopeful would count on a continuation of this surge through the rest of the week.

Others will view today with a healthy dose of skepticism.

The Dow gained 102.30, the S&P added 10.89, but the Nasdaq lagged, gaining only 9.50, roughly half the gain, in percentage terms, of the other indices.

Oil changed course on Tuesday, gaining $1.25 to close at $59.06 though the price is largely being held aloft by continuing cold weather in the US Northeast. With Spring's warming just around the corner, and oil prices failing to overtop $60, the good news for drivers and homeowners is due shortly.