Matt Trevino blog, excerpt.
Friday’s Trading
August 15th, 2008
Recession Priced In? Ha!
Some analysts are saying that the market shrugged off Thursday morning’s bad economic news because the recession is priced in. I don’t believe that for a second. It seems pretty obvious to me that large hedge funds pushed prices back up to where they needed them to be profitable on their options positions. And that is easy to do in thin summer trading.
So perhaps this is a way to play Friday morning’s three economic reports. If they push the market up or down, fading the move, and depending upon the hedge funds to bring prices back to where they were might work. For example, XLF was pinned right around $21 all day Thursday. If it pops or drops Friday morning, it should eventually get back to $21. I’m using the XLF as an example because its volume was very light on Thursday, and that makes it easy for large hedge funds to control it.
I probably won’t make any such trade, but I will be watching to see if the concept works.
The Crashing-Commodities Rally
When oil traders get margin calls as oil falls, they are forced to sell other things. If they had been playing the wider commodities bull, they were probably forced to sell things like KOL, UNG, POT, etc. So oil drags down everything else.
Another large part of the commodities play was investing in natural-resource countries like Brazil, Australia, etc. So, when falling oil forces those positions to be liquidated, that creates a tidal wave of money flowing back into the USA causing the dollar to soar.
Australia and Brazil (EWA and EWZ) have the same chart as oil (USO).
Other traders who were invested in these areas, but did not get margin calls, probably have simply fled back into non-commodity areas such as tech and financials.
So, a stab down in oil prices produces a stab down in all commodities, a stab down in natural-resource countries, a stab up in the dollar, and a stab up in non-commodity-related stocks.
The analysts who are starting to believe that this bear-market rally is for real are living in a dream world. When this commodity money stops sloshing around so violently we will see what the real deal is.
Of course, if the rally continues, there is always the possibility that it will suck in more-and-more suckers. If the public comes in as it did during the March-to-May rally, then this rally can keep going.>> |
