I view this incident as further evidence that the US equity markets are floating higher and higher on nothing but a bubble of air. Those who continue to chase stocks higher based on nothing but liquidity injections are playing a fool's game.
I look at today's one minute collapse in prices as a warning of what will happen to this market when all of these hedge funds who keep jamming these markets higher decide to stop buying. At some point, who in the hell are they going to sell to when the bell is rung???
Following is a 5 minute chart of the emini S&P 500 futures. If you happened to have gone to the bathroom just before the sharp selloff began, and came back and sat down in your chair in front of your quote screen, you would have seen prices pretty much right back where they were when you left. "Oh well, not much happening at this point" would have been your response. Boy howdy would you have been wrong.
Can you imagine how much money was lost today by traders on the long side of this market when those computers started selling and picked off every single downside sell stop?
Already you are hearing voices condemning the computers. Why is it that we only hear these voices when prices move sharply lower but the same voices are eerily silent while the same computers are busy buying everything in sight and shoving prices into the stratosphere? I only pose that question to point out the hypocrisy of those who seem to think that there is an ELEVENTH AMENDMENT to the US Constitution noting a God-given right to a permanently rising stock market.
My contention is that this madness we are witnessing in these markets, every single damned bit of it, can be attributed directly to the Fed and this incredibly stupidly short-sighted QE crap. A balance sheet of over $3 TRILLION and rising...
There is nothing fundamental behind this rise in stock prices - nothing - not when commodity prices continue moving lower and lower. Yet, someone keeps pushing it higher even as volume continues to shrink. This tells me that there is no sponsorship in this rally other than those who are AFRAID to SELL IT. That is leaving the air pocket overhead which can be hit by comparatively small buy programs.
Today, the reason cited for the move higher in the first place is that the news out of the Eurozone is so pathetic, that traders are just convinced Draghi is going to LOWER RATES and start their own version of the Fed and BOJ liquidity party. In other words, more funny money creation. This generation of stock investors/traders is collectively punch drunk.
Meanwhile, the markets bubble higher and higher - where they stop nobody knows. Place your bets ladies and gentlemen but you had damned well be first to pull the trigger on the sells if you expect to have much of anything left when this party stops. It is a TRADER's Market and not an INVESTOR's MARKET. Just remember that and you will be okay.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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