Rally Time?

by Larry Levin

Rally time? It was "rally time" today for sure folks. Lift off was scheduled for a few minutes after the open, which led to the major indices notching their 3rd best advance of 2010. What caused such a move? There are many reasons to be sure but I believe the following are the main culprits: short-covering, the SKYNET & Atari main frames, the Hatoyama resignation, and President Obama.

"Short-covering" may sound like an easy answer but it happens all the time and is the cause (in the beginning) of every rally. Short-covering, by the way, is the act of removing your short positions that you hoped would be profitable when the market dropped. Whether this short position is profitable or not is irrelevant because the only way you can exit this position...IS TO BUY. Once this starts, short term trend traders like me add fuel to the fire by buying as it rallies and also by supporting dips. Additionally, this can often lead to "buying programs" at the NYSE.

Overall volume was pathetic today - and what happens when the volume is low...the lower the better? That's right, you guessed it: the SKYNET and Atari computers take over and push the market up. Aint it grand that nobody ever complains about HFT traders when they drive the market to its 3rd best day for the year...on the lowest volume in weeks? Nevertheless, that's quite OK with us because we "see" the big boys enter the market with our special volume chart - giving us the size and exact price.

The Hatoyama resignation in Japan wasn't a direct influence on the US or other equity indices, but an indirect influence via Yen weakness. You see, if Forex traders are selling the Yen because of this major event, then other currencies will rise due to their "relative strength." Thus, we saw a rally in the Euro currency which indeed helped jack up equities.

Finally there was president Obama's speech day in which he proclaimed to be the greatest thing since sliced bread. Everything is great. He's fixing all that ails us. In fact, he said, employment is absolutely racing higher which I guess means we're out of the woods. Moreover, president Obama said he is expecting a great employment figure Friday. OK, OK, I am paraphrasing "a bit" but it was rumored among traders that the White House is looking for a one million job gain on Friday. We'll see if that's true in a few days; but who cares if it is true tomorrow, when you can ramp the market today.

Some miscellaneous but irrelevant news came out in housing and auto sales today. Auto sales were better than expected but are still at 1980's level. Home sales are more silly; this report was also better than expected but that's because YOU PAID FOR IT TO BE BETTER. Last month is when the free government cheese (read: wasted money) ended. Said another way, the government stopped borrowing money from China - AT INTEREST - to give away to people who do not need it.

What's more telling is today's mortgage application data sans the insane debt being racked up to bailout the homebuilders. Bloomberg put it this way - "The Mortgage Bankers Association's purchase index extended its deep post-April plunge, down 4.1 percent in the May 28 week to dig out a new 13 year low. The index is down more than 40 percent from four weeks ago as April's end to stimulus has apparently dried up the home sales market."



Previous Day's Trading Room Results:

Trade Date: 6/2/10

E-Mini S&P Trades*
(before fees and commissions):


1) No "Secrets" trades filled today.

2) Algorithm positions (22)

3) “Reading the Tape” positions (14) combined Secret’s, Algo, & “Reading the Tape” tota +20.50



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