Today’s commentary at Rick’s Picks took a sanguine view of U.S. equity markets: “With a closet Marxist in the White House for four more years and the U.S. economy headed into something worse than recession, we should view any significant stock-market rally as a golden opportunity to bet against the house. Under the circumstances, yesterday’s 107-point tumescence in the Dow offered a tempting opening. Not quite yet, though. Our coldy mechanical technical indicators say stocks could go at least somewhat higher before they become engorged to the bursting point. Speaking more subjectively, any market-watcher with olfactories could tell you that the broad averages, currently hovering within easy distance of new all-time highs, stink worse than a clam’s crotch. Consider the backdrop: taxes on income and investment are about to rise steeply; public spending outside of Washington is imploding; corporate earnings have been deflating since summer; new hiring will be asphyxiated by 2000 pages of Obamacare; and America’s fraudulent housing ‘recovery’ is about to breathe its last.”
With the above as backdrop, the following discussion ensued in the forum. Like Rick, “Red Will Danaher” spent many years on the trading floor, where front-running and other forms of skullduggery were not merely common, but pervasive. Both see the stock market’s buoyancy as an unsustainable fraud:
RWD: A few observations and points of interest. Although your Hidden Pivot tehnical analysis is not volume oriented, I’m sure you’d agree that the volume profile of the entire “rally off the bottom” has been pitiful. This most recent “rally” has been in line with that and has been a joke in terms of volume. Typical markup madness in front of and through a Holiday so that the masses aren’t talking about the recent plunge and are feeling better. This one, though, took the cake in terms of a dearth of volume and, as you and many of us noted, most of the “rally” was achieved by rigging overnight futures buying — courtesy, no doubt, of a Plunge Proection Team member. You know, most big players love to buy big when liquidity is the thinnest right?
The other thing that I wanted to mention is that ZeroHedge has about 2 to 3 pages of almost pure Kryptonite as far as…true believers [of the bull market] would be concerned. So much for the “amazing earnings miracle” that that group likes to focus on. So concentrated, but so easy to ignore for some. “It’s that time of year when 2013 outlooks and strategy pieces bog down an otherwise already overloaded inbox,” notes a post at ZeroHedge. “Some are wise; some not so much. We thought the following four wise fun facts noted from Morgan Stanley’s Adam Parker would brighten-up an otherwise dull Wednesday evening. Full details below but: just 10 S&P 500 stocks accounted for 88% of 2012 EPS growth; those same 10 will account for only 34% of the growth next year; 5 stocks are projected to account for one-quarter of the entire S&P 500’s EPS growth in 2013; and of the 20 firms expected to grow earnings faster in 2013 than in 2012, 8 of them will be swinging from major slumps to miraculous gains. It seems that once the fiscal cliff is behind us then the whole world is fixed, equities can initiate ramp-mode, and analysts’ expectations have a chance of coming true. Parker, however, like us remains more stoic of reality with his 1434 end-2013 S&P 500 target (with downside 1135 possible).”
Rick: Interesting observations, RWD. It’s true that only relative nickels and dimes have been needed to push the broad averages steadily higher since the March 2009 bottom. The reason for this is that nearly all upward progress through bands of supply, along with occasional, breathtaking, volume-less spasms, are the product of manufactured short-squeezes.
In the interim, with few long-term sellers other than corporate insiders, stocks can remain effortlessly aloft more or less indefinitely, waiting opportunistically for the next news item capable of triggering a short squeeze. Until recently, Europe’s monthly bailout announcements were a reliable catalyst for short-covering mania. But when U.S. stocks shrugged last week following ostensibly bullish news concerning Greece, it became clear that stimulating even fleeting euphoria with this tactic is no longer possible.
It helps that supply has been greatly lightened by the desertion of individual investors from the stock market. What’s left is an institutional Ponzi game, and I doubt that the dominant players require help from any Plunge Protection Team, since the firms are able to create their own good fortune by running index futures higher in the wee hours, then selling into the catch-up, short-squeeze surges that are certain to follow on the opening bell. All that is required to succeed is an absence of particularly bad news.
Of course, this fraud cannot continue forever. But with every central bank in the world joining in the Fed’s last-gasp credit blowout, it is impossible to predict when the ruinous epiphany will come.