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
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TheSlayer Jul. 12 at 2:01 PM
And, there's the immediate drop after the close. Amazing.
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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.
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TheSlayer Jul. 12 at 1:52 PM
This late surge probably won't last past the close. Just a dull day all around.
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TheSlayer Jul. 12 at 1:47 PM
Disappointed shorts squeezing to new highs into the close
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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.
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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.
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