Wednesday, January 12, 2011

S&P 500 Breaks to New Highs, Short Sellers Dropping Like Flies

After a 7 day consolidation, the S&P 500 broke above last week's highs after yet another premarket melt up.  Thus far today's gains have been contained at roughly the same amount as the premarket surge... as was the case yesterday.  Meaning much like the rally since March 2009, very little happens many days during the normal market hours and most of the gains happen overnight.  Whatever the case the melt up with no relent continues (working on 7 weeks in a row of gains in the latest iteration after nonstop gains in Sept/Oct), as the index surges toward strategists year end targets - only 115 points to go (less than 10%) to reach the popular pin the tail on the donkey figure for year end 2011 of S&P 1400.  The break over S&P 1280 sets that as new floor and onward and upward we go.

Short sellers have been cowered as they are extinguished by the Federal Reserve's plan to manipulate prices "higher than they otherwise would be".  In normal times this hodge podge of indicators (margin debt surging up, investor confidence off the charts, short sellers giving up, et al) would be a contrarian investors dream.  But we don't live in normal times as central bankers are backstopping every asset on earth - debt or equity.  In the theater of the absurd yesterday a country with 200% debt to GDP (Japan) offered to provide funds to Europe's bailout package.  The grand shell game continues - but as Chuck Prince once said, we dance until the music stops.  The addendum to that is "and then we wait for the next multi trillion program by the Fed to fix the music."

Via Bloomberg:
  • Bets against the Standard & Poor’s 500 Index fell to a one-year low.  Short interest on the S&P 500 dropped to 6.87 billion shares, or 3.9% of shares available for trading, as of Dec. 31, down 5.7% from two weeks earlier. It was the third straight period that S&P 500 short selling fell. 
  • The benchmark measure of U.S. equities completed its sixth straight weekly gain on Jan. 7, the longest winning streak since April. “Most investors can see that momentum is going forward and they are reducing this risk trade because the odds are not in their favor,” said Daniel Genter, president of RNC Genter Capital Management in Los Angeles, which oversees about $3.7 billion. “There’s a lack of volatility, which makes it tough to short on a daily basis, and the upward momentum means it’s a losing proposition to bet against stocks in the longer term.”

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