Watch Out For The Trap Door As the Noose Tightens

Closing Market Commentary For 06-22-2012

Markets closed without too much fanfare as Mr. Market decided to move sort of sideways with a slight positive bias today in a tight and narrow range after yesterday’s drastic 2+% decline. Two ways to look at today’s session. One is that a sideways consolidation is a bullish situation recovering from a falling market that fell because of an overreaction by investors. The other is that it is a consolidation that is a normal event after descending over 2% before heading south again. Actually I believe that it is a bit of both in that investors are waiting to see several reports Monday morning before committing. The HSBC Flash China Manufacturing PMI (JUN) of medium importance will be announced along with the US medium importance Chicago Fed Nat Activity Index (MAY) and the US New Home Sales (MAY) looking for a slight increase.

Traders were often afraid to venture out on the ‘hangman’s platform’ today knowing full well what awaits them should they be caught off guard. The RRR** has been extremely narrow today making day trading a useless and dangerous activity something like like standing on the hangman’s platform trap door. The first clue is the sly grin on the hangman’s face that he waiting for you to make a mistake.

I too, know the market is going to fall, but am unwilling to bet today on the short term. Been there, done that and had the tee-shirt ripped off my back. My shorts bought several sessions ago are doing well and if Monday market is up some, I’ll then get some more.

This market is extremely weak and everyone knows it judging by the lack of participation going in to this weekend.

The SP500 at the close.

The $RUT at the close.

The DOW at the close.

The EEM at the close. This one is used by some analyst to predict trends. If the crossing of the 50day MA over the 200 day MA (violet line) means anything, then it is a forgone conclusion of a bearish outcome in the future.

This article below is worth reading just to view the Photoshopped photo of ‘ol Ben Bernanke. The takeaway for the bullish is to be very careful where you step over the next few sessions.

@zerohedge:

Biderman And Bianco Berate Bernanke, Buy Bullion, And Batter Bullishness

Critical of the market’s reaction to the ‘no new QE’ news, Biderman and Bianco wholeheartedly believe yesterday’s plunge was entirely due to the fact that the ‘Bernanke Put’ – that we have become so conditioned to expect – did not appear at the levels many expected.

Despite a federal deficit of $100 billion per month, it seems the Fed is now in agreement with Biancerman that US growth is limping along at best but notably Jim Bianco believes the fiscal cliff will end up more of a bump in the road as he sees politicians being forced to agree to extend or roll-back (maybe at the very last minute) offsetting the abyss.

However, with the debt ceiling looking like it will be hit before the election, it will be interesting to see what political parlance is used if-and-or-when Geithner borrows from the trust funds to keep the government going this time (or not). Positive on Gold longer-term, Bianco sees it like other markets: “Gold is a junky that has not got its money fix” and the only reason to believe Gold is a sell is if you think CBs are done – they are not!

Finally the two discuss the fact that ‘nobody wants to be bearish anymore’ when looking at sentiment surveys – setting up a ‘trap-door’ for the market.

@dailymarkets:

Chinese Manufacturers Put Crude Demand In Doubt
Crude Oil futures have been hurt by a supply glut and soft economic conditions. The continued weakness in the Chinese manufacturing sector has no end in sight and could result in much lower petroleum consumption than previously thought. Technically, the Crude Oil chart looks as though it could be close to confirming a bearish continuation.
Fundamentals
Crude Oil futures briefly traded below the $80 level in overnight trading, as the market faces growing supplies and slow … [visit site to read more]

To make things worse for the Greeks, the electrical grid is being reduced. That will get the attention of the World when Greece goes dark.

@telegraph:

Power [electricity] traders in at least four countries have reduced or halted electricity exports to Greece due to non-payments. With Greece deep in crisis, power grid operator LAGHE owes foreign and domestic suppliers €327m, a court document obtained by Reuters shows.

Trading sources say that at least four trading companies in Switzerland, Italy, Bulgaria and Germany have either lowered or cut off sales to Greece due to high credit risk and delays in payments over the past three months for power they sold. A Swiss-based trader said:

We have quite considerably reduced volumes in order to control risk exposure in Greece due to the delays of payments by the market operator.

** RRR = Risk Reward Ratio

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Written by Gary