24 May 2010

SP Futures Daily Chart and a Brief Note Ahead of the Comex Option Expiry.

The SP is continuing its bounce off the long term trendline for this leg of the bull market in stocks, the result of the reflation effort by the Fed. So far this is a dead cat bounce, and below the 200 DMA it is not wise to take a bullish stance.

Stocks showed some remarkably artificial action last week that was a bit hard to miss.

Similarly, gold and silver continue to rebound from the blatant hammering they took last week as we approach the option expiration at the COMEX. A fellow that trades there said last week that the price would be back over 1200 by Wednesday, and that the option buyers 'were just asking for it.'

Perhaps they were, but it is the job of the CFTC and the US government to make sure that they don't "get it," that is, get cheated, at least not that easily, through the obvious manipulation of price which we have seen in the last week. It would be as if the Nevada Gaming Commission allowed false dealing and marked decks to facilitate the casinos cheating their customers, who were dismissed as greedy gamblers deserving it anyway. Why this argument is allowed credibility in the financial markets is beyond me.

The sellers are easily identified, as are the sellers of the calls, and the large short interests. This is not rocket science, requiring deep analysis. It is a failure to do one's job, and uphold their sworn oaths to protect the public. You can judge their motives.

Think they will be able to keep gold below 1200 into the Call Option expiration? They may have done their work already. And after the calls convert they can hit the futures again, and hits the stops of the new holders of futures from the call conversion. Different day, same racket.

As far as stocks go, 1050-1060 are old familiar friends for support and resistance. In this case 1050 is a massively important pivot, with air underneath.

"The government is the potent omnipresent teacher. For good or ill it teaches the whole people by its example. Crime is contagious. If the government becomes a lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy. To declare that the end justifies the means -- to declare that the government may commit crimes -- would bring terrible retribution."

Supreme Court Justice Louis Brandeis
We are back on the long gold/silver - short stocks hedge with a bias to the downside, but that bias changes day to day. We would like to get short the long bond but we are not at that point yet.

At the close:

The SP futures went out around support at 1071, the lows for the day, but the techs were showing a little relative strength led by names like Apple. The weakness in the SP was led by the financial sector.

And as always, keep an eye on the VIX, which drew back a bit today from last weeks elevated highs. The VIX is an important indicator of downside weakness.

Notice that the SP 500 Cash Index is below its 200 Day Moving Average which is just north of 1100. Volume is showing up on the declines and the Money Flows are weak.

I continue to expect Machiavellian things from this market, for that is the stuff that perfect trading results are made of.