Yesterday we saw 60 instances of +1000 tick or greater. Indeed, there were many instances of +1200, +1400, +1500, and the most extreme buying extreme yesterday was a +1608. As we saw very recently, with the historic +1700 tick, fuel gets dissipated very quickly and exhausts the buying pressure with this kind of “hammer down” buying.
We have already seen an over 10 point decline from this morning’s high. This is not unusual when the market is forced to drink from a firehose. The market is always reacting to the posture it is forced to take, and the volatility we are seeing now will be replaced by a less volatile environment before this month is over. Just as a sideways market is storing energy for a big move, big moves become exhausting and lead to less volatility and less risk for trading.
The bottom line is that we will soon see (within the next two weeks at most) a market much easier to handicap and trade. If they cannot close the market above 1100 by week’s end, this will again suggest that they have again expended too much fuel too fast, and a trading range between 1060 and 1100 will likely be the more docile environment for a while.
It is important, however, to keep in mind that the Obama Election Rally of 2010 (OER 2010) is in full swing. In late June, the cumulative tick was so extremely negative, that I began to talk about a bottom and and a sharp rally that would be coming in the near term. When the market hit 1002.75 in the overnight session on July 2, I posted that the low of the move was likely in, and that we would also likely rally strongly from there. This opinion was questioned by many, yet the very next day we saw a sharp rally in the s&p, and I then posted that this was likely the beginning in earnest of OER 2010. The goal that the administration likely has for this market by the mid-term election cannot be overlooked. I further posted that my trades would primarily be to the long side going forward, and I dusted off and brought out the “bull elk” avatar for use going forward. Again, despite disdain for forced market moves, the positive bias cannot be overlooked going forward, despite the exhaustion signals the market gives along the way (such as on July 15 with a +1700 tick, and indeed also yesterday with over 60 instances of +1000 tick). In this environment, pullbacks are for buying until proven otherwise. A close below 1060 on ES, however, would change that sentiment despite all of the “best efforts” of the “entities in control”.
Bozo Bernanke is testifying today and tomorrow. The market will be locked on his every word. The economy seems to be weakening, not strengthening, despite what our favorite clown might have to say at the circus today and tomorrow. The FED, in more normal times, would have shot all the bullets in its gun by now. In modern times, however, they have an infinite amount of our money at their disposal to throw at both the stock and bond markets at the administration’s every whim.
In sum, both stocks and bonds will be volatile with every statement, or misstatement, by the Court Jester today and tomorrow. Be careful as this market is likely to hit stops in both directions until we settle down a bit from all this extreme action. As always, keep an eye on the long bond’s activity, as bonds often move in advance of stocks.
Good luck in your trading today……………and all the best!!
- fishhook
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