Friday, July 12, 2013

SPY July 12 2013

SPY July 12 2013

Several people were commenting that Friday, July 12 2013 was one of the most dull and lifeless trading sessions of the year, and you can't blame them. The S&P 500 traded in a very narrow range and closed the cash session precisely at the midpoint of that tight spread, at 1670.

The most (and perhaps only) interesting thing that happened during the day was a monster squeeze in the final half hour or so, as shown below. You have to imagine that the Bulls were certain that their superior wisdom and trading acumen finally had paid off, and that it was off to the races because, after all, nobody can deny the inevitability of 1700 and beyond:

S&P 500 E-mini Futures to 4 p.m.

Seems like the day ended wildly positive, eh?

But not so fast, bucko. Some of us who have spent way too much time staring at computer screens have seen this sort of thing before. We were commenting on Stocktwits that it was just a short squeeze, and that the big surge likely wouldn't last past the close, when the shorts who had to cover by 4 p.m. had done so. Also, we noted the likelihood that the close would be at 1670, because they like to close at a nice, convenient round number in the middle of the range on days like this.

Well, look below:

S&P 500 E-mini Futures July 12, 2013 to day's close, including after 4 p.m.

There's no need to dwell on Friday's action too much. The shorts are all very clever and smart and adept traders. Often, though, they are a touch too clever and insightful for their own good, because they all start thinking the same clever and insightful thoughts at the same time. Today was one of those days. Everyone can look at the SPY chart at see that it is overbought by just about any measure.

A day like today was like catnip for the shorts - it was just too obvious that a little digestion was needed. No doubt, they kept loading up throughout the day, just waiting to be proven right. The only problem is that, when the boat gets too overloaded, it keels over on you, and that is precisely what happened today to the shorts.

I understand the market is overbought. It must come down and digest the rapid gains from 1600 at some point. "This must end badly." But you can go broke waiting for that to happen. It is essential to play this market as it plays, not as you think it should play. That is what makes this seemingly benign market the most difficult some of us ever have seen, because it is JUST SO OBVIOUS that it is too high, but we can't trade that way or we'll have our heads handed to us. Meanwhile, those who are short get to proclaim how much wiser they are by being short, while secretly they slink off after the close to count their losses.

Just so there's no misunderstanding, below are my own posts today on Stocktwits and my twitter channel @The__Slayer on the subject. The below times are Mountain time (that's where I am), so simply add two hours for EST:

TheSlayer Jul. 12 at 2:10 PM
LOL straight back down to value at 1670, the boys know how to work this like the pros they are. $ES_F

TheSlayer Jul. 12 at 2:01 PM
And, there's the immediate drop after the close. Amazing.

TheSlayer Jul. 12 at 2:00 PM
When it's obvious market is overbought, up all these days in a row etc. - a squeeze is what you get. Congrats on being so clever, shorts.

TheSlayer Jul. 12 at 1:52 PM
This late surge probably won't last past the close. Just a dull day all around.

TheSlayer Jul. 12 at 1:47 PM
Disappointed shorts squeezing to new highs into the close

TheSlayer Jul. 12 at 11:46 AM
Wouldn't be surprised if we see a close right in the middle of the range at 1670.

TheSlayer Jul. 12 at 10:32 AM
Remaining question for the day is whether traders position for an all-time high next week, or want to go risk-free for the weekend.

Wednesday, July 10, 2013

SPY July 10 2013

SPY July 10 2013

The trading day was confined to a very narrow range due to worries about the release of the Fed minutes. It used to be that the market worried about earnings and wars and economic releases, but now, what truly matters is what a few government bureaucrats are thinking.

The market instinctively spurted higher upon the release of the Fed minutes, but there wasn't much meat there. As the futures chart below shows, the Fed minutes were a mere blip that quickly was erased. Value built throughout the day in the low 1640s (futures).

S&P 500 E-mini Futures during the market day, July 10, 2013

The real action happened after the close. Fed Chairman Bernanke gave an academic speech that the market interpreted as wildly Bullish about the prospects for QE. The results are shown below.

S&P 500 E-mini futures including after hours on July 10, 2013

As you can see, the futures galloped 20 handles higher in a matter of minutes. Bulls understandably are ecstatic, as a truly mediocre day turned into a bonanza for them after the close. Anyone who tries to trade on fundamentals and technicals, however, should be troubled by these developments. You can throw charts out the window if all that matters is what one man says whenever he chooses to say it - and with who knows what associates and colleagues and friends of his "in the know" before-hand about what he is going to say - which may explain some anticipatory late buying before the close.

This concentrated power in one un-elected individual is making a travesty of the markets.

I know, "whatever." If you are long, you don't care about the reasons the market is rising, and that is fine. Our outlook remains Bullish. Shorts who can't close their positions until the open are certain to close their positions in a wild frenzy and panic tomorrow morning, so expect a gap higher.

Monday, July 8, 2013

SPY July 8 2013

SPY Daily Chart July 8 2013

The market has confounded almost everyone by simply shrugging off the Bernanke warning, buttressed by statements of other Fed Governors, that QE must taper and end at some point. This is one of those "gotcha" markets, where they "gotcha" when you start to disbelieve your own eyes and bet against this rally.

The 50-day moving average should provide support. The market ran into the bottom of the old uptrend channel today and came to a dead halt, but we've seen this time and time again - this period of digestion usually resolves with another surge higher.

The new trendline higher is important. Dips to it and/or the 50-day moving average could be buying opportunities. Remaining Bullish.