Posts Tagged ‘short squeezes’

Short Sales: The Real Issue

Karl Denninger presents a compelling argument that market makers should not be exempt from rules preventing short-selling shares that cannot be borrowed (naked short selling). Because the quantity of a given stock in "float" is fixed, traders and market makers should not be allowed to create unreal and illogical bets on stocks that result in perversion of market dynamics and wild price swings. That’s my summary, Karl explains in detail. – Ilene

Short Sales: The Real Issue 

Stack of red gambling chips over two numbers on roulette table

Courtesy of Karl Denninger at The Market Ticker

Matt Taibbi once again writes in Rolling Stone, this time on naked short sales, and while he gets a good part of the issue right, he (and many others who have opined on this situation over the years) miss the forest for the trees.

Matt writes:

But the most damning thing the attack on Bear had in common with these earlier manipulations was the employment of a type of counterfeiting scheme called naked short-selling. From the moment the confidential meeting at the Fed ended on March 11th, Bear became the target of this ostensibly illegal practice — and the companies widely rumored to be behind the assault were in that room. Given that the SEC has failed to identify who was behind the raid, Wall Street insiders were left with nothing to trade but gossip. According to the former head of Bear’s mortgage business, Tom Marano, the rumors within Bear itself that week centered around Citadel and Goldman (GS). Both firms were later subpoenaed by the SEC as part of its investigation into market manipulation — and the CEOs of both Bear and Lehman were so suspicious that they reportedly contacted Blankfein to ask whether his firm was involved in the scam. (A Goldman spokesman denied any wrongdoing, telling reporters it was "rigorous about conducting business as usual.")

Matt gets so close, but fails in the closing.

See, there are two area of naked shorting that nobody wants to really deal with, yet both have to be if we are ever to make a difference. Let’s deal with them in turn.

The first, the writing of "naked" swaps, is one that I’ve written about before. The essence of a "credit default swap" is a contract whereby the buyer of protection insures…
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Recent Failed Sell Signals and Short Squeezes in the SPY

Recent Failed Sell Signals and Short Squeezes in the SPY

Courtesy of Corey at Afraid to Trade

I wanted to give an updated look at the recent post entitled “If History Repeats, Will it Mean New High for S&P 500?“  As we see today, the answer is overwhelmingly “yes” as I suspected would be the case when I wrote that post on October 6th.

Let’s take an updated look now that ‘history has indeed repeated’ and also step inside the three most recent “short squeezes” on the SPY and S&P 500.

Starting with an updated look at the SPY Daily chart:

SPY Chart

In the prior post, I mentioned that the pattern looked eerily similar to the prior “surprise” rallies that were fueled in part by short-covering (buying pressure to exit positions with losses).  The yellow highlighted regions reflect the “short squeeze” while the red regions represent valid and classic short-sale signals (be they from momentum or volume divergences, and/or breaking beneath the 20 day EMA).

These ‘failed sell signals’ started with the July ‘breaking’ of the widely publicized Head and Shoulders pattern which led to a massive short-squeeze (so many people were 100% convinced the market was going to break to new lows from this pattern).

From there, buyers have invalidated (or busted/broken) three additional short-sell (swing trade) signals, resulting in snap rallies to break to new 2009 highs each time.

Let’s step inside the highlighted zones above and see them on a plain 60min chart:

(Click for Full-Size Image)

Not only were there valid divergences, but there were large downside (morning) gaps and strong selling days that preceded the reversals to the upside, which tells us that shorts were entering positions, and as the market -for whatever reason – began to reverse, an “avalanche” occurred as prices rose, which triggered out stop-losses and drew in fresh buyers.

Notice the swift upside gaps and strong up bars in each of the highlighted regions, especially the current region which began on October 5th.

What is the implication?

As I mentioned in the previous post, odds strongly favored a retest or breaking of the 2009 high which occurred today (a re-test).  Should price continue to nudge slightly higher beyond $108.03 in the SPY and 1,081 in the S&P 500, then we will see more short-sellers be stopped out which will create further upside ‘bursts.’

This is…
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SP Futures Hourly Chart at 2:30 EDT

SP Futures Hourly Chart at 2:30 EDT

Jesse's Cafe AmericainCourtesy of Jesse’s Café Américain

Some short term indicators are flashing that we are nearing at least a short term top. There is also indication of distribution of stock here by insiders to the public, which is also an indication of a possible top. This judgement is based on many charts and indicators not shown here.

Having said that, our discipline will not prompt us to do any seriously non-hedged shorting until the ‘trendline’ Key Pivot is violated at least on a daily close, and then confirmed by a move lower.

The market is rising on thin volumes, and unless the sellers come back in, it can continue to drift higher on program trading and short squeezes.

We are within two weeks of a potential ‘crash window’ where a final top will be made, and a selloff with a significant leg lower will be seen into the end of year. The window is a bit wide for now, a six week period starting around August 17th. We will hope to tighten that up by the end of July.

This is only a probability, not a hard forecast. But it has us edgy to be on the long side, even in precious metals miners, without hedging a general market decline. The Cashflow in the market is looking a bit stretched. We may have to wait until later in earnings season for this to shake out.

In sum, the markets seem ‘precarious’ and unstable to us, but not enough to jump in front of the market to the bear side yet. 

As an aside, we are seeing quite an increase in ‘screwy fills’ on the bid ask level II where fills on the retail side seem to be made ‘out of bounds’ of the usual bid/ask action.

We do not use market orders normally and would not suggest them here for those that do. The market makers are shaving fills and front running perhaps although that is harder to spot except on the thinly traded stocks where other issues may come into play.

But we are seeing far too many fills BELOW our limit bids on some stocks to believe this market is functioning normally.

[Click on chart to enlarge]


 


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Phil's Favorites

The Blacker Swan

 

The Blacker Swan

Courtesy of John Mauldin, Thoughts from the Frontline 

“A similar effect is taking place in economic life. I spoke about globalization in Chapter 3; it is here, but it is not all for the good: it creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words, it creates devastating Black Swans. We have never lived before under the threat of a global collapse. Financial institutions have been merging into a smaller number of very large banks. Almost all banks are now interrelated. So, the financial ecology is swelling into gigantic, incestuous, bureaucratic banks (often Gaussianized [bell curve] in their risk measurement)—when one falls, they all fall. ...



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ValueWalk

Coronavirus stimulus check 2: Get it together, Congress

By Michelle Jones. Originally published at ValueWalk.

Many Americans are waiting for coronavirus stimulus check number 2, and the June jobs report caused some to think there won’t be one. However, it sounds like a second round of IRS stimulus checks is still possible. In fact, we might even be able to say that it’s likely.

Q1 2020 hedge fund letters, conferences and more

Mixed unemployment numbers

The Department of Labor showed that the U.S. economy added 4.8 million jobs last month, which is the largest increase ever recorded. ...



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Zero Hedge

"Panic-Driven Hoarding Of Bank Notes": People Aren't Abandoning Cash During The Pandemic, They're Socking It Away

Courtesy of ZeroHedge View original post here.

Habits change in the midst of a global recession, not to mention a global pandemic. We have already looked at how the pandemic has caused seismic shifts in many industries, but it is also causing a shift in how people think about, handle and (in this case) hoard cash. 

While we have been told non-stop that the pandemic is going to prompt the demise of paper currency and the words "digital dollar" continue to make appearances in government white papers and studies, the Bank of England found that there was a...



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Biotech/COVID-19

Coronavirus deaths and swelling public sector debt share a data-quality problem

 

Coronavirus deaths and swelling public sector debt share a data-quality problem

Different countries report coronavirus data differently. Shutterstock.com

Courtesy of Marion Boisseau-Sierra, Cambridge Judge Business School

Watching scientists, politicians and journalists struggle to compare national death rates from the coronavirus pandemic, I had an acute case of déjà vu. Though the virus may be novel, the confusion generated by inconsistent data standards is anything but. It’s something I&...



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Chart School

Golds quick price move increases the odds of a correction

Courtesy of Read the Ticker

Every market corrects, maybe profit taking, maybe of allowing those who missed out, to get in!


The current open interest on the gold contract looks to high after a very fast price move, it looks like 2008 may be repeating. A quick flushing out of the weak hands open interest may take place before a real advance in price takes place. The correction may be on the back of a wider sell off of risk assets (either before of after US elections) as all assets suffer contagion selling (just like 2008).

This blog view is a gold price correction of 10% to 20% range is a buying opportunity. Of course we may see  a very minor price correction but a long time correction, a price or time is correction is expected, we shall watch and...

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The Technical Traders

Wild Volatility Continues As US Markets Attempt To Establish New Trend

Courtesy of Technical Traders

We’ve continued to attempt to warn investors of the risks ahead for the US and global markets by generating these research posts and by providing very clear data supporting our conclusions.  Throughout the entire months of May and June, we’ve seen various economic data points report very mixed results – and in some cases, surprise numbers as a result of the deep economic collapse related to the COVID-19 virus event.  This research post should help to clear things up going forward for most traders/investors.

As technical traders, we attempt to digest these economic data factors into technical and price analysis while determining where and what ...



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Kimble Charting Solutions

Nasdaq 100 Relative Strength Testing 2000 Highs

Courtesy of Chris Kimble

The tech bubble didn’t end well. BUT it did tell us that the world was shifting into the technology age…

Since the Nasdaq 100 bottomed in 2002, the broader markets have turned over leadership to the technology sector.

This can be seen in today’s chart, highlighting the ratio of Nasdaq 100 to S&P 500 performance (on a “monthly” basis).

As you can see, the bars are in a rising bullish channel and have turned sharply higher since the 2018 stock market lows. This highlights the strength of the Nasdaq 100 and large-cap tech stocks.

...

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Lee's Free Thinking

These Charts Show COVID 19 Is Spreading in the US and Will Kill the Economy

 

These Charts Show COVID 19 Is Spreading in the US and Will Kill the Economy

Courtesy of  

The COVID 19 pandemic is, predictably, worsening again in much of the US. Only the Northeast, and to a lesser extent some Midwestern states, have been consistently improving. And that trend could also reverse as those states fully reopen.

The problem in the US seems to be widespread public resistance to recommended practices of social distancing and mask wearing. In countries where these practices have been practi...



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Digital Currencies

Blockchains can trace foods from farm to plate, but the industry is still behind the curve

 

Blockchains can trace foods from farm to plate, but the industry is still behind the curve

App-etising? LDprod

Courtesy of Michael Rogerson, University of Bath and Glenn Parry, University of Surrey

Food supply chains were vulnerable long before the coronavirus pandemic. Recent scandals have ranged from modern slavery ...



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Members' Corner

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

 

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

No matter the details of the plot, conspiracy theories follow common patterns of thought. Ranta Images/iStock/Getty Images Plus

Courtesy of John Cook, George Mason University; Sander van der Linden, University of Cambridge; Stephan Lewandowsky...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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Promotions

Free, Live Webinar on Stocks, Options and Trading Strategies

TODAY's LIVE webinar on stocks, options and trading strategy is open to all!

Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  

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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. Contact Ilene to learn about our affiliate and content sharing programs.