Rumors VS. Data

by Larry Levin


Well, well, well, today was an interesting day indeed. It was a tug-of-war of sorts, with apathy pulling against very...VERY...bad data. Luckily for the fearless apathetic lot amongst us who couldn’t care less about cascading sovereign debt defaults on the world’s doorstep and increasingly horrific job losses, a hero emerged. Someone started a rumor that one company among the tens of thousands listed on the exchanges would be buying back shares - a stock split - and the market E X P L O D E D.

As an example, the March S&P futures gapped open much lower due to the poor economic data (coming later) and quickly put in a low at 1084.70. From there the high frequency traders (HFT) took over and churned the markets back and forth slowly for the entire morning and early afternoon session, thus keeping fear at bay. Additionally, when the market did swoon a bit, Golden Slacks supported the market by buying large size in the big S&P pit.

In the early afternoon it hit like a mad PPT trader masquerading as a legitimate agent of the NY Federal Reserve: MASSIVE BUYING! Within minutes the S&P500 along with the other major markets took flight and quickly rallied 1%. Had a rate cut followed the recent rate hike? Was the recent horrific economic data revised by the BS artists at the BLS? Nope - the market took off because it was rumored that AAPL would split its stock 4:1. Yep. A rumor. A *^%$#!G rumor! About 30-minutes after the short covering carnage started AAPL denied the story...and the market proceeded to ADD to its gains.

When the S&P500 came upon the 3:15pm close, the market had settled negative, but hardly. The rally was good for 17.50 points from the low equating to a 1.6% reversal. And in case you didn’t know, a 1% market move equates to well over $100 billion in market capitalization. Therefore, this amazing move tacked on ~ $180,000,000,000.00 to the US (non-rigged) market cap. How nice.

Oh, did I mention this was based on a RUMOR…an UNFOUNDED RUMOR? Not to worry though folks - you can bet your bottom dollar that the fellas on Fraud Street weren’t about to let a massive rally fade away to nothing. After the initial period when AAPL denied the rumor and the market churned around 1097.00, then the market went even higher.

Said another way, Fraud Street kept the gains based on a known FALSE rumor...and then...wait for it....wait for it...I G N O R E D the real news of the morning. It was a well timed replay of the Greek bailout rumor of Feb. 9th. How healthy is this market if its best moves are 100% fabricated bull$#it?

I have another question or two: Who benefited from this other than Goldman Sachs? I wonder how many magical S&P500 at-the-money calls were purchased moments before the explosion? I wonder if the SEC will investigate? Would the Lame Stream Media ignore this if a false rumor triggered a 1.6% route? OK, I know the answer to the last two - and it’s no.

So what caused the market to fall apart before the open? Oh, nothing really. Hmm, let’s see here; we have Greece on the verge of bankruptcy due to a further credit downgrade, the guaranteed spread of this sovereign debt disease to other EU countries, the guaranteed disintegration of several large EU banks, political & social unrest, a fake durable goods data point, and another so-called surprisingly bad weekly jobless claims data point.

Who is surprised by any of this worse than expected bad news? Oh yeah, only economists. We covered that yesterday. Way to go fellas - another EPIC FAIL at the guessing of the weekly data. (I’m sure glad my Dr. doesn't "guess" when he treats my ailments.)

"Equities slumped early as the cost of insuring against default on Greek government debt rose a fourth day on concern ratings downgrades will cut the nation's access to European Central Bank funding." You can bet on it. "Greece has to repay more than 20 billion euros ($27 billion) of maturing bonds and bills by the end of May, according to data compiled by Bloomberg. A Moody's downgrade may make it harder for the nation’s banks to fund themselves by making Greek government debt ineligible as collateral for European Central Bank loans." You can bet on that too.

The Durable Goods report got major headlines from the Lame Stream Media about how bullish the number was. This is only the case for the headline number. Responsible for the good headline number was a 126% increase in civilian aircraft orders (these orders can be cancelled, by the way). Outside of transportation, orders fell 0.6%. Core capital equipment and machinery orders dropped 2.9% and 9.7%, respectively, which are the important ones that determine the direction of the economy. For all of 2009, durable goods fell a record 20%. But don’t worry, it "could have" been worse.

Later we find out that economists had expected weekly jobless claims to be 460,000. It was a surprising 496,000. Now I’m not a high-falutin’ economist, but I think the latter number is a lot worse than the former. Let me grab a calculator here...YEP, sure enough - it's worse. But some market watchers only pay attention to the four-week moving average to get around the occasional problem of large weekly data. Yeah, umm, no help here either: this number has risen by 30,000 to 473,750 in the last four-weeks.

But hold on to your hats - what's this? A rumor you say? To hell with the facts - buy, buY, bUY, BUY!!!!

With that said, you can see from the attached trading results today we follow the trend, not the news, and NEVER the so-called experts. In the end we fared well. However, everything printed here are unmitigated FACTS and you need to know them. When the day comes that the markets cannot pump up an insane rally on pure nonsensical rumor, but rather sells off on the bad news, at least I can say I tried to warn you. This market is sick. To be sure, that day will come. Its date, however, is unknown.



Previous Day's Trading Room Results:

Trade Date: 2/25/10

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

1) No "Secrets" trades filled today.

2) Algorithm positions (11)

3) "Reading the Tape" positions (13)...combined Secret’s, Algo, & "Reading the Tape" total...+18.25



Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!