Saturday, September 4, 2010

A Picture of the New Stock Rally

by Barry M. Ferguson, RFC

Extraordinary times require extraordinary analysis. The Dow Jones Industrial Average is now up over 4% for the month of September. That's just three trading days. That's following the worst month of August in ten years. The rally is born from the Dow 10,000 level. It is clear that market manipulators and investors alike see this level as the ultimate green light to buy with abandon. But why?

The economic data of the week was molded and presented to induce a rally. But the data was nothing new. New and existing home sales were bad by historical comparisons yet real estate was up very strongly on the week. Intel lowered third quarter expectations and said PC sales had really slowed considerably. Yet, Intel rallied. As the government always reports with employment, they offer contradictions. The 'official' unemployment number rose to 9.6% while the economy lost 54,000 jobs - fewer than was expected. Also, first time unemployment filings fell by 6,000 or so - better than expected. GM's car sales fell 25%. Economic deceleration was evident as the service sector slowed. The spin of the data was it could have all been worse. Ergo, things are getting better.

Let's cut the crap. The Dow was below 10,000. Should it spend much time south of the 10k line, even the dumbest American might begin to suspect 'recovery' was a fairy tale. So, up we went. But look at the chart of the intraday trading on the DIA with 10-minute bars. While there are six and a half hours of trading during each day, the rally was confined to about thirty total minutes. This picture is more bizarre when we consider that the three days of September consisted of 19 and 1/2 hours of trading. Again, if we look at the chart, we can see that the entire 440 point rally from the 10k level basically was not a rally at all. It was basically 20 minutes of buying with heavy volume. Two bursts. That's it. It would seem that someone with a lot of money brazenly juiced the indices with heavy buying volume with the intent of powering a rally. Let's just call this someone the PPT.

DIA - 5 days ending 9/3/2010, intraday, 10-minute bars

Amusingly, the Kabulbank (Afghanistan's largest bank) announced they were in trouble. The Taliban were threatening them? No. Terrorists? Don't be silly. Something more horribly destructive. The Kabulbank was set up by the US as a copy of the US banking system in 2004. Now, the bank is broke and facing depositor runs. They are now hitting up the US for a bailout. Now where in the world would they get the idea that the US government was focused solely on enriching banks that work for the Federal Reserve to loot the citizenry? Where would they get the idea that the bank could do anything they pleased, take all the risks they wanted, pay no attention whatsoever to lending prudence, and should they become insolvent, the government would be there to bail them out? Where would they get such ideas? Has Geithner been over there? Bernanke? All I can say is the Afghans learn quickly! Oh, by the way, you and me, the taxpayers, will soon be sending more of our money to a failed bank. The good thing is the Kabulbank is a lot smaller than Citigroup or BofA. Well, maybe we are not so 'amused' - just sickened.

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