What's Driving the Market?

by Larry Levin


In a short piece, analyst David Rosenberg explains what he believes is driving the market. The highlighted sentence below (done by me) was singled out because "Rosie" and I agree. I said the same just a few days ago.

From Breakfast with Dave

WHAT’S DRIVING THE MARKET?

We’ve been asked repeatedly how the stock market has managed to bounce off the nearby lows with such veracity. Especially with the ongoing weakness we have seen in the incoming U.S. economic data due to the fact that the retail investor still refuses to participate and is solely focused on income-generating strategies. The answer is that the market may have been on the receiving end of another few jolts of liquidity. M2 money supply has expanded $38.5 million in the past two weeks and the M1 money multiple has risen from 0.839 to 0.862.

When we go to the weekly data from the Fed, we see that “trading assets” on commercial bank balance sheets expanded to $325 billion in the past two weeks from $297 billion. And, when we go to the Commitment of Traders report, we see that there has been a big swing in the net speculation position on the S&P 500 “E-minis” on the Mercantile Exchange (futures and options) to a net long position of 28,172 contracts from 15,155 net shorts just two weeks ago. That’s a big part of the bounce-back — prop traders and short-coverings. Nothing fundamental here, as far as we can see.

JUST CALL IT A WHOLE LOT OF VOLATILITY

* Last week’s 5.4% increase was the best performance since mid-July 2009 (week of July 17th). But yet, prior to last week, the S&P 500 saw the largest decline (-5% during the week of July 2nd) in eight weeks, and it was down two-weeks to boot (July 2nd and June 25th weeks).

* Last week also saw three days of positive performance, a streak we last saw in mid-April of this year. However, prior to those three positive sessions, the S&P 500 was down five trading days in a row.

* Last week’s increase also comes in the heels of declines in June and May, which was the worst back-to-back decline since January and February 2009

* In Q2, we saw the worst quarter (-12%) since Q4 2008 and before that, Q3 2002. In fact, going back to 1946, a decline in the quarter of 12% or more is only a 1 in 20 event (we have only seen 12 quarters of 12%+ declines in the past 64 years).

* For the first half of the year, we have seen three up months (February, March, April) and three down months (January, May, June).

* The 80% increase in the stock market that we saw from March 2009



Previous Day's Trading Room Results:

Trade Date: 7/13/10

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


1) No "Secrets" trades filled.

2) Algorithm positions (7)

3) “Reading the Tape” positions (13) combined Secret’s, Algo, & “Reading the Tape” total… +6.75



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