TheSlayer's Market Thoughts

SPY July 30 2013

It was another listless day for SPY on Tuesday, July 30, 2013. In past summers, we had booms and crashes and flashes of financial lightning. This summer, it has been a slow sleepwalk, as everybody is afraid to make a move without Uncle Ben's blessing. Imagine a patient having a seizure (2010), and then being sedated (2013). The market currently is sedated. Whether that means it also is on life support remains to be seen.

Everybody is getting tired of this, Bulls and Bears alike. The market doesn't want to sell off despite numerous golden opportunities to do so. Buyers, on the other hand, remain hesitant to send the futures above 1690 again. Instead, the market is almost blatantly baiting traders to fold their cards on these half-serious dips, then enticing a few chasers on the futile runs higher. The wise, of course, are biding their time while selling the rips to the upper 1680s and buying the dips to the 1670s, but that game won't last much longer. As the chart below shows, we've been doing the Up-Down-Up-Down dance for about a week, and the range is narrowing as more and more traders catch on to the game. The futures have formed a wedge, which probably won't be broken until tomorrow afternoon.

S&P futures 4-hour chart

After all this consolidation, if Bernanke so much as gives the wrong person a dirty look tomorrow, or unexpectedly mentions the wrong name ("I have recommended that Alan Greenspan come back and take over the Fed again"), it could ignite either a solid melt-down or a classic run through 1700. When the firestorm gets lit, the traders on the wrong side of the trade will have to act fast. Given that there's been five days of this consolidation, the blaze that burns could be especially bright. If the market starts higher, shorts could cover and give the move added punch. On the other hand, it is the summer, so we also might just see the usual hour bump in one direction, with feints in the other direction, then a torpid close. That's what happened last time.

We'll have to wait and see, this is a truly weird market when the words of one man determine the fate of investors, speculators, retirees, pension funds, and everyone else who holds financial instruments. Having learned his lesson with his callous carelessness in May, it's unlikely Bernanke will come right out and make an ass of himself again, so the hunt for nuance will be frantic.

It happens to be the end of the month, so window-dressing decreases the likelihood of a major sell-off (though it doesn't eliminate it by any means). The pros can't go their clients showing they are only holding cash. That will mitigate any quick downward move. A spurt higher seems to have the better likelihood. Most likely, the big players already know what they want to do and are just waiting for the right moment to drop the hammer.