14 February 2011

SP 500 and NDX March Futures Daily Charts: Option Expiration and Brave New Bubble

More melt-up trade on thin volumes, not indicative of confidence, but mere momentum trading by gambling hands holding hot money courtesy of the Fed.

The market is now entering bubble territory, being artificially driven too far and too fast. Once again the Fed and Treasury are trying to use Wall Street to create a recovery in the real economy rather than reflect or even anticipate it. This sort of trickle down economic quackery has failed twice so far at least, generating bubbles that are followed by even more severe declines.

The US is caught in a credibility trap. They cannot perform effective change without admitting the corruption and placing the powerful status quo at risk. So this will continue until there is an unavoidable crisis.

Well as should be clear from the last few days of monetary mumbo jumbo, to the modern economic mind perception is everything and the truth is what we say it is. It does not matter if you feel good and are healthy, as long as you look good. And the pervasive accounting frauds have made the US economy look better than it is.

After the bell FedEx lowered its forecast based on the rising cost of fuel.

JP Morgan placed a downgrade on Wal mart.

I cannot help but wonder what games will be played on this option expiration in such a thinly traded, over inflated market.

The way I would tend to play this market is hedged or flat, or very cynically short term if I had a mind to that sort of thing.  

Wait for three down days to play for the short side or a break of key support, or some unavoidable trigger event that reveals the hollow nature of the recovery.

As a reminder this is option expiration week in the US equity markets, so expect a lot of short term 'technical trade.'