Rally Time

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Rally Time It's the end of baseball season; did you have your rally cap on? Perhaps you were waving a rally towel today instead? Well, with Wednesday's mega-reversal, it must have been a little of both! All of the US indices staged rather breathtaking rallies despite little to *cough* no *cough* news to speak of. That's right, there was no cure for cancer announced, peace on earth hadn't become a reality (quite the opposite, actually), and iCrap didn't announce another meaningless gadget. So why the rally you're wondering? In my opinion, it was a very strong short-covering rally, which is normal when markets are weak. The question is, however; Will said rally be enough to keep the market off of its back and continue to new highs? (Spoiler alert: The entire world's central planning banks are still in control --- of everything!) According to Occam's Razor, the hypothesis with the least competing assumptions should be assumed correct. Another more complicated hypothesis may eventually prove to be correct, but in the dearth of certainty, the less assumptions that are made, the better. In light of Occam's Razor, let's take a look at a much more complicated (and humorous) explanation of Wednesday's mega-rally than mine, which comes from ZeroHedge.com Post-EU Close, stocks had started drifting lower... that will never do... So, enter "The Manipulators" Goal: S&P 500 to 2,000 Begin... Step 1: Sell VIX (VXX or VIX futures most liquid and/or use dark pools to hide the volume) - S&P 500 starts to rise.. but the momentum does not hold.. Unleash Step 2: Another VIX slam but throw in some JPY jiggery-pokery just to see if we can ignite the momentum and run those 2,000 stops... Yep - that worked... any minute now... Oh wait, it stalled at 1,999.79... Step 2a: Try selling gold... that should keep the rally alive... Nope... ok... last try... Unleash the JPY - Step 3: RUN USDJPY through 109, take out stops and that should bring S&P to 2,000 and beyond... "We are losing it Jim... I cannay hold it" Step 3a... dump it, dump it all -VIXtermination at the close but stocks have folded by then... Mission UNaccomplished... close but no algo-cigar today. Whether you enjoyed the recent (oh-so-small) dip in the markets or Wednesday's rally more doesn't matter much if you're a trader; the better volatility is fantastic. Wait...did he say cigar above? OK, I'm in! Read Past Issues of Larry's Newsletters at TradeWithLarry.com

Well you can't keep a good market down. The markets rebounded back from the slide to start this week. The DJI led the way with the SPX following close behind. After initially dropping to start the trading session, we bounced off the lows and just continued to make new intraday highs. The question is, will we sustain any momentum to the upside? That could be a strong possibility in play. We could also slide back and give up some of the gains from yesterday. I suspect there is a chance we could pullback during today's session. Now recent history will say that we should continue higher. For the most part, I think we fit into that pattern. Read More

TECHNICAL DATA ES 1990.75/1973,75 POC 1991.50 YM 17127/16973 NQ 4084.50/4044.00

The market likes to find the pain. Where can it force market participants to act? That's why we see a lot of "fights" at key technical levels. We can also "find pain" in stocks that have a lot of short interest and positive news comes out. When we have stocks that have a significant amount of their outstanding shares "held short", unexpected positive moves can trigger a wave of short covering (shorts having to buy back their positions). Here's an actual example we had in the class with Sun Edison (SUNE). Some color from TradeAlert.com: Sun Edison is squeezed higher. The stock is up 7.8% to $20.80 in heavy trading of 9.4 million shares on unsubstantiated speculation (Briefing, FlyonthWall) that GE is interested in the solar panel company. The stock is heavily shorted with a recent short-to-float ratio of more than 26% and the spike is probably driving a lot of short covering. On the options front, early call buyers swept Oct 19s shortly after the opening bell for $1.10 and $1.12 before the chatter started making the rounds. Volume at that strike is now 6,003 against 1,838 in open interest. The market is $2.08 to $2.37. The top trade looks like a sale of 2,565 Oct 20 calls at $1.15 and maybe a closer. Open interest is 23,943, which is the second largest behind the 31,755 contracts of OI in the Oct 24 calls. Read More

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