Testy Tuesday - Have the Markets Become Comfortably Numb?

by Phil - January 19th, 2010 8:08 am

"There is no pain you are receding
A distant ship’s smoke on the horizon.
You are only coming through in waves.
Your lips move but I can’t hear what you’re saying.
When I was a child
I caught a fleeting glimpse
Out of the corner of my eye.
I turned to look but it was gone
I cannot put my finger on it now
The child is grown,
The dream is gone.
but I have become comfortably numb." - Pink Floyd
 

I have a theory that the markets (and the American people in general) aren’t irrational, they are simply shell-shocked after suffering a very traumatic group financial experience… 

To be shell-shocked is to be "mentally confused, upset, or exhausted as a result of excessive stress" and the most common symptoms are: Fatigue, slower reaction times, indecision, disconnection from one’s surroundings, and inability to prioritize - That certainly sounds like our Congress doesn’t it?  Combat stress disorder was first diagnosed in WWI, when 10% of the troops were killed and 56% wounded - far worse than had been experienced in previous wars.  Our current financial crisis has similarly affected more people than any previous crisis with almost everyone knowing someone who is bankrupt or lost their jobs or homes and almost no one escaped the carnage of the downturn without some financial damage. 

Combat fatigue may go a long way to explaining the severe drop-off in volume that has plagued the markets since March, with participation now down to 25% of where we were last January and that leaves us open to the blatant sort of market manipulation that Karl Denninger caught last week as well as the usual nonsense we get daily from HFT programs that drive the market with such precision that we are able to tell how the day is going to go by simply checking our hourly volume targets.  Here’s a clip from CNBC where a floor trader discusses market manipulation as a fact of trading (2 mins in).  

As Nicholas Santiago points out on In The Money Stocks,   "January is usually a very high volume month, yet it has started off the New Year even lighter than the last two months of 2009.  Light volume markets are very difficult to short. Hence the old saying, ‘never short a dull market’."  Not only is the market volume light, but over 60% of the trading volume is concentrated on 5 stocks:  AIG, C, BAC, FNM and FRE!

We have often noted that high-volume (relatively) days almost always tend to be down days and PSW Members can tell you how the…

Tags: ADTRN, AMTD, BAC, C, COH, CREE, CSX, EAT, EBAY, EDU, FAST, FFIV, FHN, FRX, FULT, HBHC, HCBK, IBM, IIVI, KMP, LOGI, MMR, MS, MTB, NTRS, OHB, PETS, PGR, PH, PNFP, RJF, SBUX, SLM, STT, STX, USB, WFC, WIT, XLNX

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Weekly Wrap Up - Double Up or Double Top?

by Phil - October 10th, 2009 8:37 am

Not such a good week!

Last week was FANTASTIC and we had 28 winning trades out of 36 with an average gain of 42% on the winners and an average loss of 12% on the losers - now THAT’s A GOOD WEEK.  We were stopped out of most of our bearish trades on Monday but we took a lot of new ones, which I’ll get into later…  Of course, since we are rangish and play both ends, the good news is we still had our "losers" and puts that we sold on long positions and those turned into huge winners in just 5 days:

• AA at $13.30, out at $15 -  up 12.7%
• AAPL Jan $165 puts sold for $7.40, now $4.70 - up 36%
• BAC Oct $17 puts sold for .97, now .28 - up 71%
• DIA Nov $92 calls at $5.40, now $7.30 - up 35%
• MHP 2011 $25 puts sold for $5.20, now 5.10 - up 2%
• RIMM March $100 calls at $1.45, now $1.25, down 13.7%

So, of the 6 that were not working last week, 5 are winners this week.  As I mentioned at the end of last week’s wrap up, we were more than satisfied with our 5% drop that week and we did expect a bit of a bounce but we made the mistake of thinking The 250 points we gained by Tuesday morning was the end of it, but here we are at the end of the week, another 100 points higher and right back where we started from when we shorted into the rally in mid September. 

Last weekend we were at a great point in our range as all our put plays had just paid off, this will be an interesting contrast as we have serious problems with our new short plays and we have a little less conviction than we had in mid September that we will get our correction - not after such a sharp turn off the 5% line this week.  Nonetheless, we did stay 55% bearish into the weekend overall - still playing for our range.  But, I’m getting ahead of myself, so let’s go back to Monday and see how we got here….

Monday Market Manipulation - Goldman’s CIT Bonanza

I was not at all pleased with the scam GS was running on CIT and neither were many in the press but their attention span lasted all of 24 hours as the markets mysteriously began to take off, neatly drawing people’s attention elsewhere….

Our concern over falling tax…

Tags: AA, AAPL, AMZN, BAC, BIDU, DIA, FCX, FSLR, GLD, MHP, MOS, PGR, RAD, RIMM, TBT, WFMI, WFR

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