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Headlines Fail to Explain Market’s Gyrations

By Rick Ackerman Posted on August 4, 2011, 12:01 am EDT Last Updated August 8, 2011, 1:22 pm EDT

Pity the Wall Street Journal for having to gin up an explanation each day for whatever it is that the stock market did the previous day. We reflected on the difficulty of this task, and its inherent futility (and silliness), while discarding a stack of old newspapers yesterday morning. Markets Show Relief, for Now was the above-the-fold headline that greeted subscribers on Monday’s Money and Investing page.  And just how had this show of relief manifested itself? In fact, the steep fall of the broad averages had moderated somewhat on Friday, allowing the Dow Industrials to close down less than a hundred points. Moreover, on Sunday night there was evidence of a strong rally globally ahead of the powerful surge that was to occur in U.S. markets the following morning. Sunday night’s news had concerned the debt-limit deal just approved by the House of Representatives.

We had anticipated the stock market’s rally on the news, but also the rally’s immediate failure, in the following trading alert disseminated to subscribers Sunday night. It was headlined, “Watch for a Bull Trap”:  “If a political deal is barfed up before Monday’s night’s supposed deadline, stocks will have nowhere to go but up.  This will not be because traders think the deal is bullish for the market or the economy, but because they expect other traders to react as though it were.  Since nothing could be further from the truth, we should expect the rally to be over rather quickly.  My hunch is that it would be a good short sale with the Dow up between 100-120 points…”

And so it went.  Any bull who bought Monday’s opening bar was quickly trapped by a hellacious selloff that was still in progress as we went to press Wednesday afternoon.  The Wall Street Journal was of course a step behind the fact with what may or may not turn out to be the silliest headline of the week:  Economic Fears Hit Global Markets.  Fancy that. In other words, the supposedly all-seeing, all-knowing, omniprescient stock market was making one of its increasingly frequent “adjustments” to facts that have held most of us in dread for nearly four years. To say that these fears somehow took Wall Street’s best and brightest by surprise is to suggest that DaBoyz are more clueless than any sentient reader might have inferred. Lest any of our own readers be shrouded by the fog of the Mainstream Media’s coverage of the financial markets and global economy, we’ll state for the record that the technical evidence is overwhelming that the Mother of All Bear Rallies begun in March of 2009 is over.  If you’re interested in the precise reason why, and if you don’t want to be fooled when the bear occasionally rallies with a vengeance, as it inevitably will, consider taking a free trial subscription to Rick’s Picks by clicking here.

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  • Benjamin August 5, 2011, 2:40 am

    Another day of spectacular comments! I feel more justified for the thinking-out-loud post I made earlier.

    But even if it didn’t turn out that way, this forum is just a great place for challenging ones views and assumptions, by making you think. If nothing else, I’ve increasingly been able to articulate my views to others, on the markets and politics in general.

  • redwilldanaher August 4, 2011, 8:45 pm

    A firm launched a reality recognition algo. Bots realized it was working, deconstructed it’s function with an algo, constructed a mimicking algo and then launched with a deploy algo. This is new way that realities are eventually recognized.

    • Chris T. August 5, 2011, 12:30 am

      a friend of mine working at Lehman in 1990/91 suggested getting a math degree to go do algo work on the street.
      Seeing as that was 20 years ago, not bad advice, if only the grey matter had been set up for that (something even WS can’t control….)

  • gary leibowitz August 4, 2011, 8:18 pm

    Market down big today, dollar strong, gold weak.
    Deflation is definitely in the air. Once the notion takes hold watch the dollar strengthen even further and commodities get a deep haircut. Notice the treasury yields sink even further. The march to safety should mean US dollar and treasuries.

    The market should stay near its lows for another 2 weeks before any significant rally. This according to Fibonacci dates.

  • Rick Ackerman August 4, 2011, 7:52 pm

    I don’t think they are quite the Masters of the Universe that you’ve described, Ace. In fact, there is no possibility of leveraging one’s money during a global credit deflation. This is in marked contrast to the spectacular financial-asset inflation of the dot-com boom, when billionaires sprang up like topsy. As we know, John Paulson was the only guy who managed to catch the deflationary tidal wave at its crest, and to profit hugely from it. (Even then, it took quasi-criminal complicity from the likes of Goldman Sachs for Paulson to get his bet down.)

    As I wrote here 15 years ago, and repeatedly since, these are times that will challenge even financial geniuses to hold onto a fraction of their peak net worth. Soros was the example I used when I wrote the following a week ago:

    “We don’t imagine he would have been socking it all away in real estate. Even a fool can see not only that real estate prices, both commercial and residential, are being propped up by government bailouts, Fed sleight-of-hand and malfeasant accounting, but that they still have a long way to fall. Not the kind of thing that would interest someone as savvy as Soros. Anyway, we don’t envy him the task of managing all of his billions privately, since one false move could wipe out 20% of his net worth overnight. Imagine the stresses of having to keep jockeying huge sums of cash around when it’s an absolute given that only the bold contrarian will win in the end.”

    • Marketace33 August 4, 2011, 9:09 pm

      Rick

      I did not mean they were masters of the universe, but banksters do direct markets and make money by driving markets into a tailspin – with the help of the Working Group. They are gracious enough to buy all of the suckers stock at a loss from their panic selling as they rush into worthless cash and US Treasuries exactly where the gov’t wants them. Just as we are seeing big time today. Are the banksters buying to lose money?

  • Marketace August 4, 2011, 7:17 pm

    Anyone trying to judge or predict markets by looking solely at economic news or charts will never be able to explain these wild violent movements. When you look behind the scenes at what the gov’t and the Banksters want to happen, it becomes much clearer.

    It was obvious to me that the Debt “Deal” would not cause any rally, because it was obvious that the Working Group, would have to tank the stock market to spur market demand for US Treasuries until QE3 could get rolling.

    This plays right into the Banksters hands as they can buy a lot of stocks on the cheap before causing a dollar panic, spurring inflation and giving them obscene gains of “inflation” profits.

    Keep your eye on the big picture not the daily noise. When the market plunges do you ask yourself who is doing all of the buying and why? Do you think these buyers (Banksters) expect to take losses on these buys? You can fight them or join them Not recklessly, but with a simple consistent plan to buy when markets turn down and sell when markets turn up. You can let the markets come to you rather than trying to out guess them.

  • Chris T. August 4, 2011, 6:27 pm

    Rick,

    I am shocked that you still contribute to deforestation by reading the WSJ.
    🙂
    Then again, you probably have a cat or two, or just got a puppy, as they certainly can put this waste of a tree to good use.

    As to the difficulty in explaining, looking at the kitco chart for silver right now, I am just waiting for the news of the silver supply having been infected by a virus that causes spontaneous multiplication as the “explanation” for that move.
    Or maybe its a new fungus strain that excretes silver when consuming sand?

    • Rick Ackerman August 4, 2011, 7:43 pm

      Funny you should mention this, Chris. In fact, I hate having Wall Street Journals pile up in my office and on the driveway. But Murdoch has cleverly priced subscriptions so that it is prohibitively expensive to take the online edition alone. I can’t blame him for using this tactic to artifically buoy the circulation and advertising revenues of the hard- copy edition. Because he is so savvy, WSJ’s brick and mortar operation will survive far longer than most competitors’.

      I also hate the Saturday edition, most particularly its fashion magazine. I had always looked forward to taking a break from the newspaper on weekends, but now I’ve got to feel guilty throwing it out mostly unread. From an editorial/business standpoint, Murdoch has done an interesting thing here too, using huge photos, big headlines and jazzy layouts so that only a single story is needed to fill the entire front page of the weekend section.

      To give him his due, though, he is one of the only publishers left who pays top salaries to top reporters, and then gives them enough time to develop stories in depth.

  • Rick Ackerman August 4, 2011, 5:23 pm

    How can U.S. companies possibly be considered “healthy” in an economy as terminally sick as this one? It is true that corporate cash levels have never been higher — reportedly about $2 trillion. But this is insufficient reason to infer that corporate health “has never been better.” In fact, the companies can find nothing productive to do with that cash; moreover, it could all be rendered worthless when, as seems inevitable, the global economy cavitates from deflation to a fleeting but ruinous hyperinflation. Meanwhile, the companies’ customers have fared poorly because incomes have stagnated and net worths have declined due to the housing bust.

    Let’s see how healthy corporate America looks with the Dow trading (way) below 5000.

    • rmsimc August 4, 2011, 7:07 pm

      Exactly right, Rick

    • Robert August 4, 2011, 8:38 pm

      “In fact, the companies can find nothing productive to do with that cash; moreover, it could all be rendered worthless when, as seems inevitable, the global economy cavitates from deflation to a fleeting but ruinous hyperinflation.”

      You said a mouthful there, brother.

      I hold several well-cashed mining companies, and I have been attending their earnings conference calls asking what they have planned for their cash, and amazingly, they have no plans at all. They talk of nebulous future M&A plans, etc, but nothting concrete.

      Next step for me will be to start pushing the CEO’s to issue dividends in real metal.

      Seems like instead, they are content to sit back and let the Fed/Treasury tag team destroy the value of their cash without lifting a finger. (Kind of like all the Boomers out there who are so shell-shocked as their saving’s go up in smoke that they don’t even know who to blame)

  • Jess August 4, 2011, 3:06 pm

    I wish I could say that I have been on the good side of things here but, I am paying that tution fee now. I have heard of three stocks that have been taken down in the last week by the bots as was SLV (-1500)and not one word mentioned, another being DNDN last night. (-300)I have yet to see one headline of it huge drop, only all was good news minutes before. Da boys as depicted here in Ricks forum is hard at work. I see the benefit of seeing how the crooks operate in order to profit. Is there a safe place to go. The thugs are invested everywhere like roaches hiding in the walls. Most are running scared, the thugs slammed slv and it has hardly moved in this market fall. My guess, it worked, “stay away from slv or we will take it down again.” And they have! So if I got this right, if I find any money left when the market opens I assume I should go long because we are falling hard, but thats what they want you to think so, go short because they expect you to go long so they can slam you again. Wait a minute now I’m confused again. I got it wrong the last time and I want to be clear. We were falling because of the debt ceiling not being fixed, so after a dragged out event, it does get fixed( in their view) we crash, (-400) then its because they may go ahead and downgrade, but they dont downgrade, and we crash again, (-200). I heard some news of them talking about QE again come August 9, if they go another round, shouldn’t I go short? No its because they think I’m going short that they will rally hard and fast. Please someone tell me the truth!!!!

    • mario cavolo August 4, 2011, 4:05 pm

      As you suddenly find yourself realizing that you should, it makes you feel as if you know you shouldn’t be feeling that way, or should you? In addition, not knowing makes you realize that you don’t know even though you, er, um, should. 🙂

  • gary leibowitz August 4, 2011, 2:42 pm

    We had an unbelievably profitable 2 years for corporations. Their financial health has never been better. Where is the dilemma? The economic health of it’s citizens are a different matter. In some cases, like today, they run opposite each other.

    The gyrations are not out of the norm during major topping patterns. There is a huge pull between greed and fear. If the economic numbers keep deteriorating I suspect the market will finally capitulate.

    No amount of govenment intervention will prevent the market from falling, unless they can also produce glowing earnings going forward.

    Looks like deflation has won. The worse possible scenario for both borrowers and lenders.

    The complacency to buy every dip will be shattered soon.
    I am looking for the SPX to break below 1200 in the next 2 weeks. If it does, even briefly, than I would guess that any rally from that point will be counter in nature.

    I still wonder how a deep deflation cycle will affect gold and silver. I suspect they will have some wild gyrations in price when the evidence is in.

    • gary leibowitz August 4, 2011, 10:07 pm

      OUCH! SPX nudged to 1199. I guess that counts as below 1200. Dollar rose, gold tried rallying but failed.

      I believe we have officially entered the new bear market, IMHO. We should see some rather sharp moves up and down before it settles in 2 weeks time.

  • Roger Erickson August 4, 2011, 1:49 pm

    “Headlines Fail to Explain Market’s Gyrations”

    my thoughts exactly; and most comments here are great;
    but the harmonics on an underlying signal can prop things up only as long as their amplitudes don’t fully diverge

    as things decline, the HFT will steadily lose interest in that marginal bloodsucking alone, and will increasingly turn to buying up real, deflated assets with their fiat hoards

    count on it;

    seems to me that Da Boyz would very much like to see most Americans bankrupt, so they can buy even their daughters/sisters for cheap; and they have more than enough reserves to try it

    face it; traitors are traitors, regardless of what style of asset they hoard; there is always a full spectrum of parasites surrounding every source of output

    • Rick Ackerman August 4, 2011, 4:59 pm

      I hope you’re right, since it will be sheer delight to watch the bloodsuckers buy into a real estate market that isn’t yet even halfway to a bottom.

  • C.C. August 4, 2011, 8:50 am

    We’ve been riding a trend of debt-denial and poor fiscal policy for at least 15 years. We have charts and patterns that tell us the trend based on evidence real and perceived. We have a known fiscal-political based & biased system and finally, we have hard evidence of the past 8 years to tell us precisely what direction we’re headed. And… It’s (yet another) election cycle – as if they ever end these days. Strong consolidation in the mid $1500’s for gold confirms the fiscal-political trend.

    What more could one possibly ask for? It’s like being handed future information on a silver (or is it gold?) platter. The only ones who don’t see this trend are those who still think ‘it can never happen in America’.

  • mario cavolo August 4, 2011, 8:07 am

    I’m not on the fence, I’m swingin’ !

    Rick, let me first say that I have had plenty of losing, poorly managed shorter term swing and intraday trades over the past 2 years; let me also say I have learned alot from those “tuition” losses, that even with advisors and newsletters to follow, those are lessons that have to be learned and to sharpen up. Let me say also that a win streak on trades today because I’m suddenly trading better, does not necessarily mean I will not get creamed again later, though I think the chances of that happening are far, far less today than yesterday.

    I have made great trades in the past two months because, as I have said here, in terms of what is really going on in the markets, the “cause” is the machine, the HFT machines which are simply automatically playing the calculated swings. And while the resistance and support points of the swings constantly “flex”, and there is always some risk that they will fail, but mostly these days they are predictable, to the degree that I am swinging’ both ways on the charts successfully. Shorting the peaks and making a load, and, as I did yesterday, getting out of my crude puts at the fresh, deep bottom, then swinging into the fresh, deep S&P bottom with SPY calls for an 80% gain by the end of the day on the reasonably expected bounce from the oversold level for the day. I am NOT bragging, as it is a precarious road to think one can consistently master trading volatility swings and I would never possess such trading arrogance, nor dare anyone be dumb enough to trade based on anything I say.

    However, at the moment, playing the volatility swings seems to be working very well. When I see crude down deep intraday 3% there is very little “look to the left” evidence it is going to fall any further at the moment, hence, lower risk and a reasonably decent moment in time to go long. Likewise, a “look to the left” showed CAT had strong support at the 94 ish level, and so then, a better place to go long in CAT rather than the SPY which had already broken “look to the left” support , stronger chance that CAT would hold on a downdraft and go up stronger on a downdraft. Also, with crude looking particularly weak, then that would have been a less wise choice to get back into a long.

    Your SLW sept 42 calls I picked up cheap 2 days ago at .92 peaked yesterday at 1.42, the only reason I didn’t sell them to wisely take the 2 day 50% gain is because gold and silver are in strong upward momentum and your SLW tout reasonably indicates an expectation that the rise is SLW’s price can continue over the next month or so. Maybe it will, maybe it won’t. But I know that I minimized my risk by picking up those puts on a deep intraday swing low, and I suppose, that’s my point as to what’s been working and keeping risk far lower.

    Why should any of us be that surprised if the indexes noodle around the 200 MA for a week or two before finally heading back up on some supposed shift toward good news…? That could easily be the scenario which plays out, in fact since everyone knows everything now, and since I am particularly so sharp and smart in my trading lately, I’d call the odds 50/50!! Wow what a guru… please note all attempts at sarcasm and wit intentional for entertainment purposes only.

    Cheers, Mario

    Finally, I want to suggest a HUGE difference between the “now” crisis and the crisis of 2008. Yea, yea, yea, all so similar!! Yet there is a HUGE difference, this time everyone knows exactly what to look for, what stats and charts and indicators to follow, historical this and that, money flow this that, credit spreads this and that, debt levels blah, blah, blah to compare. Is it not the cardinal rule of trading that when everyone knows, that is the moment it is not. When what is isn’t what is? It is in everyone knowing therefore that immediately itself changes all the rules. Yet interest rates still won’t go up, lest we note how low that have been in Japan for how long now? So many indicators and facts are not lining up the way they are supposed to, because this time, everyone knows, and in fact they know much more. And therefore, we are right back to 50% being 100% wrong and 50% being 100% right about what they know they know. How many times have we been fooled in BOTH directions?

    Where is the wisdom in being contrary to the contrary wisdom? No never mind, where is the trade in it? That’s all I want to know. Where is the trade, long or short, so I can make money within the maelstrom of this God forsaken global economic mess we are in?

    • John Jay August 4, 2011, 4:40 pm

      That is a very wise philosophy, Mario.
      It is too late to change the system, too many people in power and too many people on the dole want it just the way it is. There are not enough of us outside of the super rich and the entitled masses to change the system. It is best to just feather your nest and have enough resources to step aside when and if it alll falls apart. There should be a few safe havens available to live out your life if you have the means. I remember someone said that while millions of people were busy killing each other in WWII, the well off in Argentina were dining at fine restaurants and attending the opera. The smart, suspicious, and quick got out of Europe and avoided all that drama beforehand. Prepare to disengage, trading skills can be used anywhere on the planet thanks to electronic markets and high speed internet connections.
      It’s fun and entertaining to comment on the unfolding disaster here in the USA and Europe, but we can’t stop what is coming, just get out of the way.
      Nice call on your short of oil at 99 Mario, have dinner at a nice restaurant and go to the opera or something.

  • Rick Ackerman August 4, 2011, 3:41 am

    There are times when I wish I could join you on the fence, Steve, but it’s just not my business.

  • SD1 August 4, 2011, 3:35 am

    This pattern seems (to me, at least) all too familiar to the one last year in late June, when many of us were calling for the bull’s heads and an end to “the Mother of All Rallies.” I’m riding the fence on this one.

    • Benjamin August 4, 2011, 6:03 am

      SD1,

      Not challenging your strategy, just thinking out loud after considering your words.

      I don’t know… Mother Bear has to come along, as the bill for QE1 and QE2 have to come due at some point. And though I’m no chartist, the long view seems to suggest that stocks are at or near enough the point of a large fall. Granted, some have been saying this for a long time, but…

      From where would the money come to goose Treasurys? The Fed only bought on the secondary market, I beleive, and corporate America has sold off all (sent away jobs, pleged collateral) in order to keep in that game, over the years. The Fed then stepped in with more direct cash injections to the government. The middle-man may already have been cut out, or is being cut out. And if I’m anywhere on target, then would have to mean that their stocks will have to learn all about gravity!


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