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.

Canadian Stock Exchanges Closed Today

As a reminder to all you junior miner punters, today is Victoria Day, May 24, 2010, in Canada and the stock exchanges are closed.

Some of their stocks that are listed in the US are trading, obviously but most of the Canadian junior miners are not.

Jim Rickards on King World News

Jim Rickards Interview on King World News - click here to listen.

1. Financial Warfare - protectionism, excess savings, managing exchange rates.
2. Beijing consensus: neo-mercantilism can lead to outright financial warfare
3. Bernanke worried about deflation more than anything else
4. Money printing in US and Euro is inflationary and balances China deflationary forces
5. Gold does well in both inflation and deflation - well suited to times of uncertainty
6. Pullback in gold due to liquidation to raise cash in current crunch
7. Gold sellers are daytraders, speculators, but buyers look like strong hands
8. His Price target on gold to $2,000 short term and $5,000 intermediate term
9. Merkel ban on naked short selling was absolutely right - stand up to Wall Street
10. The way CDS are being used they are not part of a free market, but a rigged game
11. Greece, Spain, and Italy are important NATO allies - we are allowing our own US investment banks to assault them financially (economic hitmen)
12. Speculation is fine, but it must be transparent, well funded, and regulated
13. No money down, shadow CDS market is completely destructive
14. Who are the Bullion Banks serving? Who are the longs and the shorts?
15. JamesGRickards is posting on twitter.com

There is a very important thought buried in the observation that Chinese deflationary forces and slack demand are deflationary, but being countered by money printing which is inflationary. That is a prescription for stagflation.

I thought he was rather easy on the Chinese who are egregiously manipulating their currency exchange rate to their advantage vis-à-vis the developed industrial nations of Europe and North America.

Much Ado About TED, LIBOR, and Currency Swaps

There is some alarm being expressed about the recent increase in the TED spread from some quarters this week.

Here is a short term chart of the TED. It is definitely elevated expressing the accelerated demand for dollars in Europe. Although the BIS reports will not catch up with this action for quite a while, I suspect we are seeing a replay of a flight away from dodgy assets such as dollar denominated CDO's that European customers had deposited with their banks that are now being liquidated again. Also, and undeniably, there is a flight to gold, Swiss francs, and US dollars from the Euro as the ECB and the EMU sort out their serious issues brought about by a single currency and monetary policy working across a wide diversity of localized fiscal conditions.



However, here is the longer term picture of the TED spread. As you can see, it is a bit too early to hit the warning sirens. But it does bear watching.



The long view is not very dramatic, and also not as useful for promoting short euro hedge fund trades, or for generating viewer clicks.

For some additional perspective, here is a chart of the one year LIBOR rate.



Here is a short term view of LIBOR in US Dollars. It is definitely elevated.



But here is a similar short term view of LIBOR expressed in ECU's. By comparing the two LIBOR charts one might think that there is an elevated demand for dollars, probably attributable to a flight to safety. The DX chart indicates that it seems to be peaking. But it can always take a turn for the worse.



And while we are at it, here is a reprise of a prior discussion of the Fed's swap lines with Europe, designed to relieve imbalanced demand for dollars.

The US is indeed contributing to the bailout of Greece, via its membership in the IMF. But not through the currency swap lines, unless there is something else going on there behind the scenes. Since the US owns the biggest printing press in the world, at least for now, that would not be a shock.

There may be a time to worry about European insolvency. But quite a bit of what we are hearing about Europe these days seems a bit overwrought, and spoken from the perspective of a particular set of speculative trades.