Can we break higher on this low volume?
We've been waiting for traders to come back from their summer breaks but no sign of them so far. Sill the market volume is at historic lows and still 80% of that volume is concentrated on a dozen financial stocks that simply get traded back and forth by robots every time the market needs a push in one direction or another.
As David Fry's chart indicates, the only big volume stick we've seen in the past two months have come attached to big sell-offs. In mid-August we were "just about to break higher" but gapped down instead and then again at the end of August, we reversed our low volume "recovery" with a big sell-off. Here we are in the middle of September (that every two week thing) and THIS TIME, the analysts say it's different. Different I guess because the volume has dropped by another 1/3 since our last fake rally.
This, of course, does not stop us from "going with the flow" as running with the bulls can be very profitable but we are hedging A LOT and very cautious in our trade set-ups as we know how fast this can all turn around. We took our short profits at yesterday's morning dip and added a mix of long and short plays during the day. We did put our foot down on SRS and the Russell, playing the SRS to go no lower than $10.25 and the Russell not to break $600 this week and we'll be sweating out that one this morning as the pre-market pump has already jammed the futures up 40 points since Europe's open.
Asia was mostly flat this morning but that does little to describe the madness at the Hang Seng, which was closed for the morning due to a Typhoon and opened for just 90 minutes in the afternoon where they dropped like a rock that was tied to a rock that was wearing cement shoes into the close. Still, thanks to a 200-point gap up into the delayed open, the Hang Seng managed to finish the day down just 68 official points. As soon as the US markets closed, dollar repair crews were rushed to the scene and they managed to get it back over 91 Yen in time for Japan's open and that helped the Nikkei stay above that critical 10,200 line we've been watching for over a month, but just barely.
Europe is flat against our open as we await Retail Sales numbers and other data which was our big worry for the week. It looks like Retail Sales ex-auto is up 1.1%, very solid and 1,000% higher than the 0.1% estimated by "experts." The PPI is up a whopping 1.7% as we expected but more than double the 0.8% increase expected by experts – who clearly do not live in this country! Core PPI was up double expectations at 0.2%. So much for deflation worries in August with a huge snap-back from -0.9% in July (-0.1% core). I really would like to sit down with some of these economists and ask them what the hell they do to determing these numbers – they are clueless! The Empire Manufacturing Index was also a huge beat at 18.88 vs 13 expected (off by 45%). This should give us a decent open but the question is – will we have enough to sustain it or will this be a great time for people to take some off the table?
![[5-yr+swap+spreads]](http://2.bp.blogspot.com/_dZJ6SFB1ecE/Sq6FLg37iKI/AAAAAAAABx8/cfwjwy1IDjY/s1600/5-yr%2Bswap%2Bspreads)
Speaking of things not being better – Dylan Ratigan, who is now on MSNBC with a morning show, has come out swinging with a statement that "Americans Have Been Taken Hostage:"
The American people have been taken hostage to a broken system. A system where bank lobbyists have been spending in record numbers to make sure it stays that way. A system that corrupts the most basic principles of competition and fair play, principles upon which this country was built.
It is a system that so far has forced the taxpayer to provide the banks with the use of $14 trillion from the Federal Reserve, much of the $7 trillion outstanding at the US Treasury and $2.3 trillion at the FDIC. A system partially built by the very people who currently advise our President, run our Treasury Department and are charged with its reform. And most stunningly — it is a system that no one in our government has yet made any effort to fundamentally change.
It has become startlingly clear that we as a country, and I as a journalist, had made a grave error in affording those who built and ran those banks and insurance companies the honorable treatment of being called capitalists. When in fact the exact opposite was true, these people were more like vampires using the threat of Too Big Too Fail to hold us hostage and collect ongoing ransom from the US Government and the American taxpayer.
This was no unlucky accident. The massive spike in unemployment, the utter destruction of retirement wealth, the collapse in the value of our homes, the worst recession since the Great Depression all resulted directly from these actions. Even with all that — the only changes that have been made, have been made to prop up and hide the massive flaws on behalf of those who perpetuated them. Still utterly nothing has been done to disclose the flaws in this system, improve it or rebuild it.
See, when I get tired of telling you this stuff someone else steps in to take up the rabble-rousing slack – it's a team effort! I've taken time off from complaining about the market this week in order to not distract myself from the bullish positions we've had to take but it's nice to know someone like Dylan can keep things real while I'm working on other projects…
In our $100,000 Virtual Portfolio Review for Members on Sunday I added a bunch of new bullish plays, mostly short sales of puts (9 plays) for yesterday's dip. We also took a double diagonal spread on BBY, hoping for a flatline with 5 Oct $41 calls for $1.60 and 5 Oct $38 puts for $1.60, Selling 4 Sept $39 calls for $1.90 and 4 Sept $40 puts for $1.65 for a net cost of $180 and it looks like we hit it on the nose as BBY missed by .05 with comp store sales down 3.1% but did leave full-year guidance in-line.
We expected oil to get jacked up today and they already hit $69.75 into the futures. If someone will pay us $1 for the USO $36 calls, we'll be happy to sell them naked so that's the way I would play that one. We're still watching gold near $1,000 but we cleaned up on last week's sale of naked calls as they broke $1,000. Another nice opportunity for a naked call sale should be the DIA today as we can likely sell the DIA $96 calls for $1.20 with 50% premium so I like that play, as well as buying the $96 puts for .60 but both are, of course, dangerous trade.
Let's go have some fun!
