Low Volume Market's Preparing For Another Reversal?

August 7th, 2012
in Gary's blogging

Midday Market Commentary For 08-07-2012

Low volume levels fell to the anemic level by 10:30 raising the possibility of a sharp reversal anytime the algo machines at the HFT trading centers feel it is time to do so. DaBoyz melted the markets up a few points and then the algo machines decided to take back some profits melting the markets back a point or two. By noon DaBoyz melted the markets right back up to new highs on volume that was lower than before.

I must have missed the vacation memo as it appears everyone has gone away to parts unknown. No one I know is even remotely interested in this market so maybe that is why there is no volume. Actually it is kind of scary and looking more and more like a setup for a big reversal and I suggest caution in going short just now. However, I just can't see this market continuing up for much longer either as the market's 'rubber-band' inattentiveness is stretched to its limits and appears to be ready to do a snap-back at any moment.

Follow up:

Today is a repeat of yesterday with a sideways trend of a tight trading range and anemic volume.

The RRR** remains narrow and risky. It is not conducive for profitable trading with the distinct possibility of another sharp reversal coming at any time.

The DOW at 12:15 is at 13202 up 84.20 or 0.64%.

The 500 is at 1405 up 11.51 or 0.83%.

The $RUT is at 804.82 up 10.47 or 1.32%.

SPY is at 140.77 up 1.15 or 0.82%.

The trend is up and the current bias is up.


WTI oil is at 93.62 trading between 91.78 and 93.70 and the bias is positive.

Brent crude is at 111.82 trading between 109.10 and 111.87 and the bias is positive.

Gold was up this morning but fell to 1611 where it is now. Trading has been between between 1608 and 1618 with a neutral bias.

Dr. Copper is at 3.44 up from 3.37 earlier.

Earlier the USD tumbled from 82.43 to 82.06 and has stabilized at 82.19.

I have cautioned in past article that the corporate profitability the market has continued to post has been undermined by their own admission that the third quarter outlook is going to be lower. Plus, the fact that these same companies are 'milking' their employees to do even more so they don't have to hire. I would guess this efficiency ploy has gone about as far as one can take it and now need to look elsewhere to save whatever profitability there is left.


A Slightly Different Take On The Recent “Good News”

Companies in the S&P 500 had been beating earnings estimates at a higher rate than in a typical quarter, providing ammunition for those who believe that bottom-line growth is what has been driving share prices higher. But a post at Thomson Reuters’ Alpha Now blog gives us a slightly different take on the recent “good news”:.

These second-quarter reports may not be as rosy as these figures make them seem, however. That’s because underneath the headline-grabbing growth in profitability, it’s clear that companies aren’t doing nearly as good a job when it comes to beating analysts’ expectations on the revenue front.

To the extent that companies aren’t able to support earnings growth via higher revenues, companies will have to rely increasingly on boosting efficiency or cutting costs – or run the risk of disappointing investors on the earnings front as well as on revenues in the future. The trend taking shape in corporate revenues serves as a reminder of a growing source of risk to corporate earnings as 2012 moves forward.

As you know the SP500 went over 1400 this morning, but do you know why? Really not too surprising considering all the manulipulating the FED's been doing for the past several years.


S&P Above 1400 As Fed Conducts Second $600 Million Repo Following Nearly 4 Year Hiatus

Last week we explained why while endless promises of Fed intervention may be enough to confuse the market and force endless rounds of short covering as weak hands are flushed out of positions under threat (but never action) of central planning, banks are no longer in a position to delay indefinitely the moment they have all been waiting for: a $500+ billion reserve injection which will allow them to go hog wild in investing in risk assets or plug capital shortfalls (off the books of course), and otherwise continue their lives in a ZIRP environment which makes net interest margin existence impossible.

We also showed that for the first time after nearly 4 years, the Fed conducted a regular (not reverse) repo last Friday.

As we explained, regular repos are liquidity injecting, and while the Fed may promise these are merely test runs, everyone knows they are anything but, and are merely a telegraphing to the banks of what is in store.

Today, the day after the last repo expired, we just got a new 3 day repo, only not for $210 million this time, but one for $600 million, including not only Treasury, but also Agency and MBS securities. The result: S&P above 1400 for the first time in months.

** RRR = Risk Reward Ratio

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Written by Gary

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