DOW MELTING DOWN AGAIN…

[LookoutBelow]

Glad I dont have a 401K anymore…..China is taking it in the shorts man…….Nikkei got slammed hard again too…..

[Ozzie]

Ooops!

[HereWeGo]

Goldilocks has the bears cleaning the floors, washing the dishes, scrubbing the counters and serving her breakfast in bed. If the Q1 GDP comes in significantly higher than 2%, the bears may as well resign themselves to indentured servitude for the foreseeable future.

[temeculaguy]

I wonder if there is a relationship between the attractiveness of one type of investment vs. increase in price of another. People have to park their money somehwhere and right now real estate, mortgage backed securities and related funds have lost their shine. I know there are other factors in play but I always hear permabulls for either stocks or R/E compare themselves against each other and use as if they were in competition for the hearts, minds and dollars of the investors. When people abandon a ship, don’t they have to find another ship to climb on.

[LA_Renter]

TOO MANY SHORTS

I found this on The Big Picture.

“No wonder China’s 4.5% correction had so little impact here: There are a record number of bearish bets made on the NYSE.

We had mentioned back in October that the then record-setting short interest on the Nasdaq was precluding a major correction from occurring.

Today, we see a similar record setting short selling having the same impact — only this time, it is on the NYSE instead. From this morning’s WSJ:

“Short-selling activity jumped to another record on the New York Stock Exchange despite the tepid returns that such bearish bets have garnered so far this year.

For the monthly period ended April 13, the number of short-selling positions not yet closed out at the New York Stock Exchange — so-called short interest — leapt 4.6% to 10,989,496,813 shares from 10,510,404,017 shares in mid-March.

Market-wide, the short ratio, or number of days’ average volume represented by the outstanding short positions at the exchange, fell to 6.1 from 6.2.”

Despite a myriad of potential pitfalls facing the market, as we have noted in the past, overly large short selling creates a bid beneath the market. When grateful shorts cover, they prevent any downside momentum from developing.

If part of your thesis is investing due to “variant perception” — the belief that you have figured out something the rest of the investment community hasn’t — then statistically speaking, the short side isn’t really the ideal place to be when short interest is at record highs.

At that point, shorting is more akin to consensus investing, going along with crowd. Even if you do so independently . . . ”

I guess we are seeing a general market Short Squeeze. This is becoming Surreal. This stock market does not reflect reality, well at least more so than usual. It looks to me somebody or some group is playing with fire next to an ammunition depot. They better be careful. I really hope they don’t think they can print their way out of this mess.

[Ozzie]

ding, ding , ding,

how about commodities.

OK, never mind. I’ll just invest in stock indexes and live in my house for 30 years. Gotta feeling it will turn out OK.

Specs left the market 2 years ago so don’t know where the panic is. whatever. give me u’r junk.

[LookoutBelow]

Okay bulls…keep buying….the tsunami is coming….this is meaningless news in a corrupted, manipulated market….I hope they can keep the high wire juggling act up….for all of our sakes

[Cow_tipping]

Submitted by LA_Renter on April 20, 2007 – 7:43pm.
TOO MANY SHORTS

Correct.
This is the first instance of wide spread options use coupled with a market that is likely to tank. Fund managers are hedging their firm’s bets by buying puts and not selling their equities. Presumably, they will buy shorts 6 months out and dump their equity after 3 months when its still close to the price today there by creating a crash and as that crash cascades and other holders sell at ever reducing prices … and when the individual investor realises its crashing its going to be too late … they have now got puts that are worth serious $$$.
You see, bad news from a company, sends its put prices soaring, but does nothing for the equity price. 3 months from now, large sell orders will trigger the equity price drop and the put values will go up.
Cool.
Cow_tipping.

[HereWeGo]

If there is a record short interest on the market, isn’t the only logical conclusion that equity prices are currently depressed by that short interest, rather than inflated?

[LA_Renter]

HereWeGo,

This is what seems to be the dynamic

“Despite a myriad of potential pitfalls facing the market, as we have noted in the past, overly large short selling creates a bid beneath the market. When grateful shorts cover, they prevent any downside momentum from developing.”

I think what also happens is that when the large money managers see the short interest grow, primarily from retail shorts, they throw money in and create a short squeeze. I’ve said this before but it looks like Shamu’s eating baby seals. IMO the market will return to fundamentals but not until these money managers rake as much money out of it as they can. Friday was options expiry and look what happened. Also the market really isn’t that strong when Gold is pushing $700 and the US dollar is at a 15 year low. Something ain’t quite right here.

[Anonymous]

I follow a few of the well-known bears in the equity markets. Needless to say, they’ve been getting their clocks cleaned in this latest rally. My own opinion is that we are in a “blow off top” period in the cycle and it’s just plain foolish to try to short this kind of momentum. As Keynes put it “the markets can stay irrational longer than you can stay solvent.”

This is a good piece, one that reflects my own POV and I think the retail stocks will be good put option candidates once the fundamentals finally do kick in.

http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_sperling&sid=a.mcWxg9aJ_E&ref=patrick.net

Be careful out there.

[HereWeGo]

As Sperling suggested, rising incomes could offset falling MEW. Now that’s not going to help over-bubbled housing markets, but it might very well keep the economy afloat.

Exports seem to be picking up steam. The world economy is growing between 4 and 5 percent … could it be that the globalization and free trade efforts of the 90’s and this decade are finally paying off for the US?

[Cow_tipping]

Rising income = inflation = Higher interest. Yes we can inflate ourselves out with our printing press, and china will stay indexed to the dollar for a while and they will go down with the ship, but we can save our economy while controlling inflation from being a runaway freight train. But housing is doomed in the bubblicious areas, and general population wise its going to be tought times on the house sales front. however eventually rents will rise, make houses rentable for payments if you bought at low fixed rates and will be near impossible to sell cos no one will want to borrow at 15% interest.
Now about short positions to back their equity … evidently a well known secret in the industry is the 9/11 situation where a few brokers who had a good amount of shorts made like bandits in that 9/17 drop of 1100 points. That has now lead the market to believe short covering is a worth while position. They have tons of the equity. They anticipate a fall on bad news from the sector. They dont sell the equity, they cover it with shorts. Now 3 months out they dump the equity at near today’srice, and their shots which will expire a few weeks later is also up now. Its a very insidious way of inside trading that is legal. You know the stock is going to drop. You hold it and leverage your way into the short, then dump it where you make money on both sides.
Cool.
Cow_tipping.

[Chris Scoreboard Johnston]

Chris Johnston

High short interest is a buy signal, not a sell signal. Extreme sentiment readings are best used to fade. They indicate alot of fear, where complacency is typically present at tops. I am heavily long stocks from a couple of weeks back trying to ride this typical seasonal upswing that occurs here. The way I see it, the fundamentals are very bullish in the near term, and I committed money accordingly.

[Author]

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