This Is A Short Squeeze

When stocks power ahead, especially after a severe downturn (such as last week's), there is normally a good amount of short squeezing going on, as individuals who borrow stock in an attempt to unload it at a lower price, thus raking in the difference (short sellers), are forced to cover (buy at a higher price than they anticipated).

The amount of money that short sellers can lose in conditions like this are unlimited, so there's a strong urge to limit losses. It's all very sophisticated, this short selling and short-squeezing, generally the province of high frequency traders at dealer hubs. Neither practice is recommended for the average 401K investor.

When short-squeezes occur, they are usually one-day events, after which the markets return to some semblance of normalcy, though "normal" is a highly suggestive description under current market conditions. Individual stocks and whole indices are being whipsawed daily by the cross-currents of currency devaluation, trade war rumors, economic data, and yes, even the occasional quarterly corporate report.

Thus, traders and analysts are well-advised to do some smoothing out of all the noise in the markets, focusing on moving averages and daily ranges, rather than final prices. In that regard, the major US indices are between their 50 and 200-day moving averages, which implies plenty of volatility, setting up both buying and selling opportunities over the near term for those with high risk tolerance (hint: probably not you).

Day-traders, otherwise known as major broker-dealers, will have a field day in such an environment, though history is rife with examples of traders being spectacularly wrong and losing billions in the process. That's likely to happen in the current environment, if only because people never, ever, ever learn from the mistakes of others.

Expect more volatility, with a tiny edge to upside trading, though different sectors and different stocks will move in different directions.

Choose wisely.

At the Close, Monday, August 19, 2019:
Dow Jones Industrial Average: 26,135.79, +249.78 (+0.96%)
NASDAQ: 8,002.81, +106.82 (+1.35%)
S&P 500: 2,923.65, +34.97 (+1.21%)
NYSEComposite: 12,687.91, +107.50 (+0.85%)

Throwing Caution To The Wind, Stocks Power Higher

Stocks surged worldwide for the second straight day as investors seem determined to make Brexit an afterthought.

They're probably correct in their assessment, as, following the initial panic selling, the reality that an orderly exit from the EU by the UK will be an ongoing process.

Stocks in the US remain largely rangebound, since breaking through to new all-time highs would seem boorish and gaudy, which is why it is completely possible.

With every passing political, emotional, and economic event, the will of investors of equities continues to defy basic common sense and rudimentary risk caution. A side effect, or perhaps a direct one, is that short sellers have been thoroughly routed for the umpteenth time. Covering by shorts has been a bloody bath the past two session.

Mind the Gap.

Carry On.

In case you haven't noticed, with today's gain to 18.38, silver is up a whopping 33% YTD, from a December 31, 2015 close of 13.82.


S&P 500: 2,069.62, +33.53 (1.65%)
Dow: 17,679.34, +269.62 (1.55%)
NASDAQ: 4,778.10, +86.23 (1.84%)

Crude Oil 49.42 +3.28% Gold 1,324.20 +0.48% EUR/USD 1.1101 +0.23% 10-Yr Bond 1.48 +1.10% Corn 383.50 -2.73% Copper 2.19 +0.80% Silver 18.38 +2.74% Natural Gas 2.85 -1.31% Russell 2000 1,131.48 +2.18% VIX 16.90 -9.87% BATS 1000 20,677.17 0.00% GBP/USD 1.3432 +0.76% USD/JPY 102.8385 +0.10%

Reviving a prior feature, here's the Rolling Stones:

Dow Ends Absurd Tuesday Streak; Stocks Breaking Down

The Dow Jones Industrials ended a string of 20 consecutive gains on Tuesday, with a blood-red beating on this day. The streak of ending positive for 20 consecutive Tuesdays was probably due - more than anything else - to POMO dates, but the concept is that the market is becoming like fantasy baseball, where stats on every conceivable construct are trotted out, such as a player's propensity to steal a base during a day game with his team ahead after three straight wins against a left-handed pitcher with a non-Latino playing right field.

That comparison may be a touch on the deep side, but the pint is that market statistics are useless in the past unless they offer some meaningful insight into the future and Tuesday gains do not pass the smell test.

There is nothing good about this market. Now would - in some people's opinions - be a good time to go short or go to cash.

Of course, since many readers of this blog are already in cash, that would mean going short is at an optimal point.

If one would like the comfort of shorting an entire index, the S&P is a good bet, for individual stocks, there are many from which to choose, but the most enticing are social media companies with extreme valuations, such as Facebook. Zynga was a disaster waiting to happen, and it did, though its low share price (threes and change) seriously precluded any dowside participation. Yahoo (YHOO) also appears ripe for a substantial revaluation to the downside. Industrials also seem to be at risk, but the market has yet to price in any effects of a global slowdown.

At the bottom of everything is currencies, and they remain the key element in the ongoing destruction of all fiat currency not backed by tangible assets. There is a severe collateral crisis combined with grand theft at the pinnacle of government worldwide, a now-vicious devaluation regime and capital velocity fast approaching zero.

Blackrock and Nuveen funds were prominent among new 52-week lows.

Any kind of growth reported by any government anywhere has to be suspect and viewed with a maximum of skepticism.

Despite cutting lossed roughly in half by the close, there was nothing to like about the overall action in equity markets. What began as a bit of slippage a few weeks ago is quickly turning into a correction, most of which will be predicated upon the numbers released by ADT (tomorrow) and the BLS non-farm payroll report, Friday.

15,000 on the Dow and 1600 on the S&P are major psychological levels which should not be overlooked.

Dow 15,177.54, -76.49 (0.50%)
NASDAQ 3,445.26, -20.11 (0.58%)
S&P 500 1,631.38, -9.04 (0.55%)
NYSE Compos 9,320.08, -37.01 (0.40%)
NASDAQ Volume 1,767,142,375
NYSE Volume 4,025,642,750
Combined NYSE & NASDAQ Advance - Decline: 2263-4193
Combined NYSE & NASDAQ New highs - New lows: 228-145
WTI crude oil: 93.31 -0.14
Gold: 1,397.20, -14.70
Silver: 22.41, -0.312

Short Sales Helpful, But Read the Fine Print

While the economy seems to be improving, though modestly, one area of concern remains the shattered real estate market, where home prices have tumbled, homeowners owe more than their house is worth - a condition known as being "upside down" - and the recent foreclosure moratoriums by mortgage servicers like Bank of America, Ally Bank and JP Morgan Chase have slowed the pace of residential real estate sales.

With unemployment close to 10%, many homeowners are facing foreclosure and looking for ways to get out from under a financial burden they did not anticipate. One such method is a real estate short sale, which is a process by which the homeowner sells the property back to the bank at a reduced price. This often results in a win for both sides, as the bank does not have to engage in the time-consuming and costly process of foreclosure and the homeowner walks away from the home and mortgage debt, usually without any residual amount owed, known in the industry as a "deficiency," that being the difference between the original amount owed and the amount of the short sale.

Most states provide for deficiency claims, and banks routinely take judgments against short sale sellers, so this is an area which needs to be negotiated with the lender beforehand, and the services of a lawyer, representing the short seller, are strongly advised. Banks don't like to take losses and will normally try to slip in a deficiency clause into a short sale agreement.

For further information, you can can click here to check for all kinds of sales - including short sales - in your area, or for sales nationwide and more information on all kinds of real estate transactions, click here.