US Equities Showing Signs of an "Exhaustion Top" Amidst Rumours, Hype, and Shenanigans

The US stock market seems to be getting rather tired after what can only be described as a remarkable rally on light volumes and program trading.

The market is trying to rise here, with announcements like the Cisco backbone router for carriers and the AIG unit sales being hyped incessantly on financial media. The hype over the Cisco backbone router today is almost embarrassing. The anchors on Bloomberg keep saying that the router can download entire movies in 4 seconds, which is a lot faster than the 10 minutes it takes today. To anyone who knows anything about how networks are provisioned this is a howler of the first order, to say the least. For the consumer, the network is only as fast as the last mile.

It has also been reported by Adam Johnson on Bloomberg television that J.P. Morgan, a major broker dealer, stopped lending shares in AIG and Citi today "on rumours that the US government might ban short selling in stocks in which it has a financial interest." This squeezed the shorts and helped give an artificial boost to financial stocks over all. The company has since stopped this self-imposed ban on loaning shares and stocks are falling off their highs.

Needless to say, the SEC is unlikely to investigate this, or advise market makers not to start arbitrarily constraining the supply of stock based on market rumours, especially when they might be trading these same stocks for their own proprietary portfolios. They ought not be able to institute ad hoc bans on buying or selling by manipulating the supply.

Perhaps another leg up, after some consolidation, but this market is now very vulnerable to a reversal. The volumes are light on the rallies, and tend to increase quite a bit on the declines. Today the volume was a little better, in a consolidation perhaps, or a simple distribution. .

As we reported last week, the cash levels in the mutual funds are near record lows. Stocks do not typically rally unless there is large scale buying. All well and good, but until selling volumes show up, the market can continue to drift higher, especially with the support of the monetary magicians and the Wall Street wiseguys.



Don't get in front, wait for it. But start getting defensive if you have not done so already.

The Ides of March are on the 15th.