Reversal

by Larry Levin

In my last report I wrote..."The market went crazy with glee last Friday when it found out that the GDP report was close to the expectations. For a change the inept economists that supply Fraud Street with its expectations did not embarrass themselves. The report showed growth two-tenths better than expected.

"Unlike inflationary data, the GDP data is annualized to make it sound more palatable than it really is, just like inflationary data is reported on a monthly basis to keep it from sounding catastrophic if one or more months showed a surge in prices. To be sure, few would be excited over the true monthly GDP growth, which is just .00133%. Uh huh, real exciting!" It would seem Mr. Market read this blog and indeed realized that .00133% monthly growth is nothing to get excited about. The S&P futures nearly gave back 100% of Friday's gains.

Although the market did "eventually" drop a lot, the day's most prominent feature was its lack of volume. Monday was one of the lowest NYSE volume days of the year. A large portion of today's losses were given up late in the day and absent of economic reports one would wonder if there was another reason of the late drop. A rumor perhaps?

I receive daily emails from a company called STRATFOR Global Intelligence that may have led to the late drop. In today's widely read report STRATFOR says...

China: Rumors of the Central Bank Chief's Defection

Rumors have circulated in China that People’s Bank of China (PBC) Gov. Zhou Xiaochuan may have left the country. The rumors appear to have started following reports on Aug. 28 which cited Ming Pao, a Hong Kong-based news agency, saying that because of an approximately $430 billion loss on U.S. Treasury bonds, the Chinese government may punish some individuals within the PBC, including Zhou. Although Ming Pao on Aug. 30 published a report on its website indicating that the prior report was fabricated by a mainland news site that had attributed the false information to Ming Pao, rumors of Zhou’s defection have spread around China intensively, and Zhou’s name has been blocked from Internet search engines in China.

STRATFOR has received no confirmation of the rumor, and reports by state-run Chinese media appeared to send strong indications that Zhou is in no trouble at the moment. However, the release of this rumor and its dispersion throughout the public is significant, particularly as the Communist Party of China (CPC) is preparing for a leadership transition in 2012.

Read more here:

http://www.stratfor.com/analysis/20100830_china_rumors_central_bank_chiefs_defection?utm_source=GWeekly&utm_medium=email&utm_campaign=100830&utm_content=GIRtitle&elq=d3d6c1491a3e4a51bdd5f8737f44d29b#ixzz0y9Wt5aBh

Perhaps that's all it took to send the market lower late in the day? Why not? Rumors work quite well on the long side so I would suppose that once in a while the reverse would be true.

This sort of thing probably wouldn't have much traction Tuesday; there is a good amount of data coming forth as well as FOMC minutes.


Previous Day's Trading Room Results:

Trade Date: 8/30/10

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


1) PP buy @ 11:07am at 1055.50 = +1.75 (1 lot)

2) Algorithm positions (2)

3) “Reading the Tape” positions (2) combined Secret’s, Algo, & “Reading the Tape” total…+1.25



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