The Entire Rally is Bullshit

So, our most recent “Magical Mystery Rally” (the seventh in two months) is because the Europeans are going to “create” a huge pile of money to “ringstop” the banks and Sovereigns so they don’t default.  Are you kidding me?

We’ve had a simultaneous worldwide rally that has taken the major indices back from the brink of what would have been a massive breakdown. The market internals were almost 100% correlated with everything moving up simultaneously which is a rare enough occurrence. And markets spike higher on every rumor of “They” “Fixing” the problems. Can you say “Sell The News”, good or bad?

MARKET ARE LYING TO YOUR FACE, AGAIN.

Sure, price is everything. And sure, a lot of shorts built up through the intensely horrible newsflow of August and September. But the markets are ignoring fundamental reality again and acting in an almost perfectly counter-intuitive fashion. No, its not just being a contrarian for contrarians sake. The market is once again luring you in with its near-term action and asking you to believe.

All the low volume volatility of recent weeks has served to scare the remaining individual investors out of the game. They are sitting with their Retirement Accounts and most won’t touch a thing, whether the market goes up  or down. The rest of the market has become dominated and overpowered by the correlation between currencies, commodities, stocks and bonds. The programs work in milliseconds to run over any intra-market movements with instantaneous results. By the time you hear or read the news, the market move is over and you as an investor are forced to chase.

Some call this a “Broken Market” and it sure feels like it is “loose” and could move 10% on a moments notice. This is the new normal and it is a very dangerous place for anyone resembling a “normal” investor. That doesn’t mean to sit it out though. What you should NOT do is chase momentum well into a move. Investors need to buy “in the hole” after days or weeks of misery. And don’t listen to the Wall Street Complex that would have you buy at any and all times, no matter what. They eventually win, but from what level is what is important during high levels of uncertainty.

We are still near the top of the range and most are “hoping” for a breakout. It’s option expiration week and we know the Plunge Protection Team works hard, but they are now ‘spent’ having simultaneously bought the bottom of the trading range in all the major worldwide Bourses. It forced the reallocation out of bonds and into stocks and commodities just in time for earnings season. And you wonder what Timmay has been doing traveling to all those countries!

FLAME ON!

Banks have begun to ratchet up Foreclosure sales after a several quarter moratorium.

Is this why shorts are covering in Toll Brothers (TOL), up 10% today?

Don’t Buy It!

So, the SPX is up 13%, Nasdaq is up 15%,  Russell up 17.5% and the Dow Transports are up 18% in eight trading days. The reasons listed by the media for these extreme gains is that Europe will be saved and that suddenly our economy isn’t so bad.

Allow me to take issue with both of these reported “facts”. If the FED gives the EU a half-trillion dollars, a similar amount to QE2, they can leverage that money. The question is “how much”? 10:1? 40:1? Would $5 trillion bail out the Euro-zone? I don’t know. But $20 trillion certainly would. Do these numbers seem realistic to you? It is past the point of Monopoly money. And there is still no agreement for a bailout. Do you think they’ll get it done? I continue to have my doubts.

But let’s forget about Europe for a second. Let’s pretend they can extend and pretend along with America. Think about our economic situation. August saw a freeze where lots of things stopped dead in their tracks. September rolled around and people got back to school and work. Some families bought shoes for their kids and the parents filled up their cars tank with gas. Plus, stocking inventory for the holiday season has commenced.

With those activities, Wall Street thinks the economy is “just fine”. So the major indices broke down and then quickly rebounded to the top of the range, like they have done seven times before during the past two months. And now that the market has rallied, the economists are changing their forecasts, from miserably negative to optimistic and hopeful.

Once again, the near-term market rally is the sole reason for a change in the economic forecast and a bullish swing in sentiment. Bears have been squashed, Bulls are pounding their chests. Even the most speculative micro-caps are running. The Wall Street Complex wins again.

But here’s some news for you: we remain in our trading range and we’re at the top of that range after one of the biggest and speediest Bear Market rallies in history. Sure, we are entering the seasonally strongest time of the year. But chasing another low-volume ramp-job is what the individual investor does to ensure their continued frustration as our economic situation muddles through.

We targeted SPX 1220 and we are now near. We will try and breakout, but why would an investor buy now after this massive move? Because there will be a greater and more frustrated fool?

Let’s talk again at SPX 1170.

So, we’ve had another five day 1000 point romp through the Chutes & Ladders of “Stock Market Fantasy Land”, similar to the “Magical Mystery Rally” of late June. Except instead of happening in the last few days of the quarter this little sprint has occurred in the first few days of the next quarter.

The media and traders cite the Nationalization of a shitty Belgian bank who needs a $90 billion backstop as the main reason. Remember Bear Sterns? They only needed a $30 billion backstop. How many banks are there in Europe? Nationalizing one may give the market a chance to breath a sign of relief. But a thousand points? Nah.

The beginning of the quarter and the calendar is clearly a reason for the exaggerated move. Lot’s of festive or destructive market movements just so happen to occur around the same quarter-beginning/end timetable. Coincidence? I think not.

How about this? Ten year bond yields dropped to new all-time lows, near 1.75% as Operation Twist began in earnest. But just like when QE2 began, bond yields have reversed and have now moved sharply higher. The money is finding a home in stocks. You see, there is this little model called the “FED Interest Rate Portfolio Model” or some such nonsense that says whenever yields drop below inflation or some other measure, that stocks should be bought. This model assumes that yields move in relation to economic activity or lack thereof . BUT THE MODEL IS BROKEN BECAUSE INTEREST RATES ARE NO LONGER DICTATED BY THE MARKETPLACE. Interest rates are pegged by Central Banks like some third-world currency and the markets welcome it! It is really quite an amazing phenomenon.

So, for the seventh time in eight weeks, the markets have traversed another thousand points in our wide and volatile trading range and each time sentiment and belief swings on a dime. Just last week we were on the precipice of an economic meldown and equity market crash. Then, after another massive rally where yearly gains are made in hours, sentiment swings again and hope reigns supreme.

The real key to our market’s recovery is simply a reallocation from bonds to stocks. In five days the yield of the Ten Year Treasury is up almost 24% from 1.75 % to 2.17%. That is money coming out of bonds and moving into stocks. Just the opposite of a few weeks ago when yields were plunging as money was plowing into the safety of Treasuries and out of stocks. And interestingly, other than oil prices, most commodity and precious metal prices are not making their usual recovery-type gains.

These moves look like something important is happening because they are so fast and all-encompassing. But illiquidity and extreme herd movement is the hallmark of our ETF/HFT addled market at this point in time. Nothing has changed except for one bank, and I still haven’t figured out how the $90 billion will be created.

The only game-changer is that the Chinese are now actively buying the equity of their largest public companies. So now everyone thinks that every little Chinese reverse merger stock is free to buy. Just be careful with them because most are as worthless as they were two weeks ago. The Chinese government won’t be buying little companies on the American market, I can assure you.

Next up is the top of our trading range in the SPX 1220 area. We broke down from the lows and reversed higher last week. Next will be a breakout, failure and reversal except from the top of the trading range. No Virginia, we are not about to break out to new yearly highs and bail out the Wall Street Complex. Not yet anyway.

But for today at least, hope still lives!

Ebay was a great idea as it revolutionized on-line sales. Of that there is no doubt. But competition and mediocre management has brought this company low. And now they have resorted to outright theft.

Case in point:

There are now new rules for getting money from EBay sales. It used to be that after you sold something, the money was transferred directly to you through credit card processing or through Paypal. But even then, Paypal told you that it would take 3-4 days to get paid. That alone is inexcusable.

Now, Ebay has changed the rules for selling. When you sell something, it could take up to 3 WEEKS for the funds to be cleared. You can jump through hoops to get paid 7 days AFTER DELIVERY of the item or jump through even more hoops to get paid 3 days AFTER DELIVERY to get your money.

Do you want your money cleared “normally”, on the same business day? Well, you have to have a history of selling AT LEAST 25 ITEMS. Now I ask you, who other than a merchant has sold 25 items? As an occasional seller of merchandise, you may NEVER sell 25 items. And then, to add insult to injury, Paypal, owned by Ebay, tells you that you won’t get paid for 3-4 days AFTER monies are cleared.

So, let’s say you are a person (not a merchant) who just sold something on Ebay and your buyers is 3-5 days ground transportation away. You get paid immediately upon the sale. You go and ship the merchandise. You upload a tracking number. It is one calendar week, at least, before delivery. Wait three days after delivery for cleared funds. If Paypal, then wait 4 more days. That is a minimum of 2 weeks before you see payment.

In this age of instantaneous credit approvals, instantaneous fund transfers, instantaneous account debits and credits, Ebay/Paypal has kept your money for AT LEAST TWO WEEKS. Are they so hurting for money that they need the float? Is their organization so riddled with fraud that buyers and sellers cannot do normal business? Is manangement trying to kill the company?

Why would anyone do business with an operation that is so disrespectful to its community?

So, for the seventh time in the past two months, the market has put together another 6% to 10% rally in just two trading days in almost every major index. It must be the Seventh Sign Pattern. That is when God and the Devil battle for control of the markets and only breaking open the Sacred Piggy Bank stored deep in the Caves of Altamira can the Devil be postponed. And he has been postponed for another day.

I am only half sarcastic when I describe the above battle between good (uppy) versus evil (downy). This kind of insane action remains a stern warning to not short the markets no matter what the economic or market environment.

Virtually all of the major indices made a new range low on Tuesday and there was still no panic. Throughout these past few weeks there was no panic and hope continued to reign supreme. Hope that “They” would do something. Well, now Trichet has “resigned” and there is little in the way of hawkishness from the ECB. It’s print or be printed. So that is what they’ll do. But at the end of the day, its won’t matter because good money is going after bad and that money will evaporate too.

What about us, here in recession-land? Well, the inventory build-out leading up to the holidays sort of stabilized some economic numbers. But earnings estimates are still too high. None of that matters because Bernanke said the magic words: “the economy is faltering”. This is the one main thing that Central Bankers must fight tooth and nail. And this is the setup for more QE. It won’t come right now but it will magically appear sometime during the early stages of next years election season, probably at the end of the first quarter. There was no implicit promise of more free money but Wall Street knows how to read between the lines.

Are you wondering where  all the sellers went? The poor performing Hedge Funds were in liquidation mode until this week when their redemption requests are put on hold until next year. Sellers? Poof, disappeared and replaced with buyers, for the moment.

I’ve been getting my buy list ready and waiting for Hope to Die . But hope is not dead yet. It remains the most essential component of the Wall Street Complex in today’s market environment. I’m pissed that my buy list goes unexecuted but this super-fast and fabulous rally comes from a new range low. We have rallied to the midsection of our range and can still recover a bit more ground, but not much more.

I know that the Central Bankers (“They”) will sell their children in order to boost asset prices and they are out in force showing that they are trying to address the problem. But it is us who will be holding the bag when their plans fail, again.

In the meantime, I will breath deeply and count to 10 as I witness:

Transports up 450 points, Nasdaq Comp up 200 points, SPX up 80 points, Dow up 600 points, Russell up 66 points. All in three days. Viva Hope…