Although the Dow Industrials finished the week with a 186-point rally, there’s reason to hope that this latest, drug-addled binge will sputter out within the next two or three days if not sooner. The sleazeballs who engineered Friday’s impressive levitation had to pull out quite a few stops to make it happen. To get things rolling, they precipitously withdrew their bids Thursday night on news that Asian markets were getting socked, apparently because of bad vibes from Ukraine. The air pocket in U.S Index futures produced a quick 15-point drop in the E-Mini S&Ps – equivalent to about 120 Dow points.
Now, it is not unusual for the night crew to push prices around a little when ostensibly tradable news comes their way. Such gratuitous oscillations usually occur within a relatively narrow range, and it is these nervous squiggles that make the long stretches of tedium in the wee hours tolerable for nocturnal predators. The added enticement is that there’s not much risk in this, provided one is not sitting on the can, or moaning over Russian porn, when all geopolitical or financial hell breaks loose as it sometimes does. In this case, however, because the Asian selloff was not serious enough to trigger a panic in Europe, let alone an avalanche in U.S. stocks, the downdraft amounted to a brazen heist. For perps accustomed to shoplifting, it was akin to their ordering the store manager to open the safe.
The Music of Lucre
The arpeggio of buying that followed was deftly played and lucrative, at least for its producers. By 4 a.m. Eastern, sellers were more or less spent when shares fell to a fire-sale level at which even widows and pensioners knew they’d been had. It took but another hour to run up stocks sufficiently to ensure that shorts, too, would greet the opening with fear and self-loathing in their hearts. By that time, seven hours off their lows, stocks were sitting above the previous day’s close. Feeling confidently in control, DaBoyz feathered back just a bit at the opening, creating a shallow pullback that allowed them to buy a few more shares without letting bears off the hook. The fact that the ass-bandits were then able to goose stocks into a full-blown second leg of short-covering, and to close the broad averages above Thursday’s peak, attests to their great skill in manipulating fear to their consistent advantage. However, my gut feeling is that the second wind-rally into the close may have exhausted short-covering for the time being, much as the 4 a.m. low had exhausted selling.
How Traps Are Set
From a technical standpoint, it’s possible that the E-Mini S&P futures will now slash and burn a path all the way up to 1949.25. That would be equivalent to a Dow rally of a little more than 200 points, or a 0.618 retracement of the plunge from July 24’s record high. Any higher will place shorts in the kind of jeopardy that Mel Gibson’s William Wallace character faced at the conclusion of Braveheart – i.e., impaled and racked to the thinness of a pipe cleaner, but still capable of responding to pain.
For our part, we’ll be looking to get short with a tight stop-loss near the 0.618 line mentioned above, but also at new record highs if they should follow. Bulls and bears would be in the same boat at that point, their buying power spent and nowhere to go but down. What a trap that would be! Not a bear in sight, nor a single bull lacking in confidence and conviction.
About Rick AckermanRick's professional background includes 12 years as a market maker on the floor of the Pacific Coast Exchange, three as an investigator with renowned San Francisco private eye Hal Lipset, seven as a reporter and newspaper editor, three as a columnist for the Sunday San Francisco Examiner, and two decades as a contributor to publications ranging from Barron’s to The Antiquarian Bookman to Fleet Street Letter and Utne Reader. His detailed strategies for stocks, options, and indexes have appeared since the early 1990s in Black Box Forecasts, a newsletter he founded that originally was geared to professional option traders.
