Thursday, April 16, 2009

Trades gone awry

Somebody surely wanted this market to have the feel of "short selling" capitulation and squeezing today. We had the ramp at the close, and then GOOG reported, and then the stocks were hit hard.

GOOG traded up to 409, and then retreated to 381 during the conference call, and then bounces to 390, as those shorting after the bell now cover!

Another squeezed stock, ISRG, which closed at 118, says it will quit giving guidance, and the stock drops 10 in after hours in two minutes, before bouncing a couple. It inadvertently released earnings this morning, and the bears jumped over the deferred revenue aspect on their report.

We just had crazy action everywhere, as it looks like someone is on the wrong side in massive size, and they are being forced in.

And we have someone, that wants someone else to think that this market is setting up to reverse.

We'll see.

I think the tape today, was being made to speak something that wasn't there in today's after hour action.

The economy is getting better, and we aren't going into a depression, and stocks are just reflecting that fact.

So Doug Tice of Prudent bear, can tell the world that the S&P is heading to 325, and David Rosenberg of Merrill Lynch can outline reasons why the market should fall. Here's his latest:

1. Whenever the S&P 500 slices to a new low, it’s time to cover shorts. Every new low in the past 18 months was met by a vigorous bounce, especially the last two.

2. Be wary of upward spasms where financials and consumer discretionary lead the way, because they typically go into these bear market rallies with the largest short positions. Also, be skeptical when the rally is led by low-quality stocks.

3. Investors seem to be enamored with the second derivative (rate of change in the rate of change) in the economic data even though bear markets usually end just in advance of a turnaround in the first derivative (the rate of change itself).

4. There seems to be confusion between an actual improvement in the economy and an improvement relative to the post-Lehman trend, when the economic indicators began to implode at annual rates of 30%-70%. Even Wily Coyote hits the ground at some point.

5. The profits recession is two-thirds of the way through; there is another one-third to go. Equity investors pay for profits, and with one-third of the downturn still ahead of us, it is difficult for us to be excited about any sustainable rally in the stock market.

The only problem with Rosenberg's thinking is that sometimes Wily Coyote goes a heck of a lot higher before he decides to come down!

No comments: