Tuesday, September 1, 2009

First Reversal to the Downside in Many Moons

"Hark! Who Goes There!"

"A Reversal to the Downside"

"You are not welcome here. Larry - more power!"

Today was the first time I can remember (showing how rare it is) when the market did its normal "reverse negative premarket action with a flurry of buying in the first 30-90 minutes"... and fell flat on its face.

As we wrote yet again in this week's summary (just as we did last week, and the week before, and the week before) we are going to be "surprised" by "good economic" news - so act surprised and start buying.

Tuesday also brings the very volatile ISM manufacturing number which I say at this point should be ignored since so little of our economy has to do with it but since auto mfg assuredly saw an uptick this number might "surprise" to the upside.

We can also be "surprised" (for the 15
th week straight) by existing home sales, which again is dominated by first time home buyers on the low end using 5.1% mortgages, 3.5% down FHA loans in which many states allow the $8000 handout to be used as down payment / closing cost. Incredibly, we find that people will buy homes when you cover the entire cost of getting them into a home - in fact it has become easier for the first time buyer to buy a home in many states than rent. With renting one actually has to come up with a deposit that does not derive from his fellow tax payer.

To show you trained people are on being "surprised", or if you are a grassy knoll type - the buying stampede happened even before the numbers came out today; a straight 45 degree angle of buying in the first 30 minutes. That's how complacent people are that "someone" will have their back - or as our good Chinese friend says (see previous entry) "we can't lose". We have Larry buying SPY futures.

We came into the weak 2:1 short: long and I am lightening up into this reversal somewhat to get closer to a more balanced exposure; but it is a warning sign for bulls. If we finally truly break down we'll get more jiggy with it on the dark side. Yesterday was also a lot worse than it looked at the end but "someone" is still playing the game of jam the market up into the close. It is actually quite pathetic this is still going on both at the end of almost every day, and beginning of each day. Today appears the first time in many moons that natural selling overwhelmed "whomever" is playing the game.

The irony will be we have been so trained for "someone" to jam the market in the first 60 and last 30 of each day, that people will not have their protection or short exposure on when the 'real thing' happens; anticipating all the King's Horses and all the King's Men to save them again. But with a very persistent "someone" who apparently has unlimited pockets you have to respect that in US markets - this game will continue. But for now the easy money has been made as we laid out on the short side. If this were still a truly "free market" as I've been saying I'd expect a lot more downside from here as every contrarian signal I've learned the past 14 years is flashing. The question is can the markets overcome "someone".

The SPY gap has been filled; and sell the news has now appeared in multiple sessions the past 3-4 days.

We said Sun Tzu was watching last week [Sun Tzu Speaks] and I will repeat his words (and mine) with the addendum: "will you slap yourself in the forehead in retrospect when market leaders are bankrupt Lehman Brothers and AIG?"

After the market corrects more than 3% will you say "I just knew it!"? No excuses if you fall into that camp.

The victorious strategist only seeks battle after victory has been won, whereas he who is destined to defeat first fights, and afterwards looks for victory.

Last amazing statistic of the day via Realmoney.com - the market has not been down more than 2 sessions in a row since mid June. Today, if no miracle on ice in the last 30 minutes, would be the first 3 day losing streak in 2.5 months. Perhaps our 6-7 week rule of rallies before rests/selloffs still holds.... but it simply was extended to the very last day of the 7th week (last Friday)

Now we await to see if "someone" shows up to do his normal bidding as the 20 day moving average has arrived. If the lemmings don't sense Larry brings more power - that's when lemmings tend to jump off cliffs.

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