http://www.zerohedge.com/news/2015-1...t-nothing-good
We can see below that Thursday and Friday featured two similar trading patterns: a dip below the LOD followed by a run until the end of the day. Note that the strength of the price run was equivalent in both cases.
The strength in the CTick was weaker on Friday, while the 20DMF strength was about equivalent for the two days. This indicates that large caps were more the target of these runs, because options on large caps are more liquid and the market is deeper.
As a consequence, the S&P500 is now at the top section of its price envelope.
Using the Breakout calculator on the past two years, I tried to either buy or short the S&P500 for a look at possible returns.
Long SP500 at the close of Friday
A long trade is obviously not a good idea.
We can see below that the returns do not improve after holding a long trade for 20 days.
Short SP500 at the close of Friday
Trading short offers slightly better probabilities to make profits.
Holding for 20 days also tells us that a short trade is better.
The above stats however offer only a "static" view of the probabilities. They do not measure long-term momentum or tactical event linked price behavior.
Conclusions:
I suspect that just to make a point, the market will try to push higher on Monday morning, but that this will fail.
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Digression on how to keep things "under control"
Below are intellectual elucubrations from someone who has nothing better to do over the weekend than think about the markets.
When I reconsidered today's post, it came down to one question: is this market manipulation? If yes, how is this legally possible? What is the real intention and how is this allowed to continue?
I am not in the conspiracy theory camp. I am more a believer that large investors have been very efficient at adapting their tools and methods to get the best of an evolving monetary ecosystem... and I also think that they have the information, the brains and the power to continue to adapt to whatever changes are in store. The goal is to make money and to keep control of how money is made.
The ecosystem is clearly one that was initiated by the Fed and built for many years using the backbone of a reserve currency and the military projection power of the United States. This backbone is now challenged by both Russia and China and might lead to more "adaptation of the ecosystem" as China liquidates US Treasuries and as the US uses its US$ weapon to fight against this challenge.
In 2009, the Fed intervened in the markets and started to provide liquidity (against worthless paper collateral) on a regular basis. The Fed also rescued the TBTF banks and "motivated" them to become the Fed's hands (gold's assistants) in order to use this liquidity as best as possible for the common goal of stability.
This ecosystem has worked very well and is still in place, even though QE has stopped. All the liquidity detection mechanisms and alerts are still available and can be used at any time depending on circumstances. The QE liquidity was made available through specific channels, but this liquidity must have been spread through agreed upon mechanisms that cannot be legally challenged. This means that phone calls stating "I am buying here at that price" or private tweets or specific secret messages are a thing of the past. What probably has been developed is a way to inform "the channel" of the TBTF that liquidity is on the way. This liquidity injection detection mechanism is I guess embedded in the biggest trading algos. This means that no collusion is necessary to push prices higher: only one lead investor is needed to ignite the move and everybody else follows.
The main objective is profit generation. The Fed or the SEC have no way or even intention to intervene, because this ecosystem is important to preserve. It is a key tool that will allow a smooth management of the coming political challenge to US hegemony.
What does this mean for private investors? Probably one or more of the following:
1. Market stability is a must. Hence, weakness will be bought, especially on specific market events (such as options expiration.)
2. Value investing in specific stocks will be extremely well rewarded, because the event based liquidity interventions distort value discovery.
3. Thinking will be more necessary than ever... especially in terms of game theory. The question will be: "How and when would I corner the market if I were GS?"