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Overnight Rallies Are All DaBoyz Can Muster

By Rick Ackerman Posted on December 20, 2011, 3:26 am EST Last Updated December 20, 2011, 3:39 pm EST

It’s getting a bit late for a Santa rally, but you can’t blame DaBoyz for trying – trying every night, actually, after most U.S. traders have gone to bed and there are almost no sellers to resist the stock market’s natural buoyancy in a time of unprecedented monetary easing.  We’ve lost track of how many times in the last month index futures hit their highs in the wee hours, only to fall into the red during the regular trading session. It happened yet again Sunday night when the E-Mini S&Ps wafted the equivalent of 90 Dow points higher on volume-less trading before dropping sharply to close off a hundred points.

We’d held a long position in the March futures going into the weekend, and although the position showed a paper gain of $600 when we exited on a stop at 1210.75 Monday morning, we bailed out well off the overnight highs. This wouldn’t be the first time we got long with an ultra tight stop-loss using the Hidden Pivot “camouflage” technique, nor would it be the first time that the uptrend we boarded went nowhere.  Catching the occasional big wave is always our intention when we do “camo” trades, but given the choppy, go-nowhere, do-nothing price action in recent months, we’ve had to adjust our “long-term” horizon downward not to months, weeks, or days, but to hours.

Santa’s Influence Nil

Concerning Santa’s seasonal influence on Wall Street’s otherwise pointless, algorithm-driven histrionics, news from Europe has overshadowed so-so reports on holiday retail sales in the U.S. The last such report suggested that many shoppers had finished early this year and that there would not be much good news coming down the home stretch. Such “facts” seem impossible to determine, though, since it would require exit polls at the malls to say whether shoppers are indeed spent out. We’ve seen no such pollsters ourselves during recent visits to Colorado’s Flatiron Mall, but neither have we seen crowds of buyers. Our gut feeling is that the holiday will be a mild bust for stores, or perhaps worse, and that’s one reason we bought some QQQ put spreads at the January strike. You can follow the position by taking a free trial subscription to Rick’s Picks.  This will not only give you access to actionable trading “touts” each day, but also entry to a 24/7 chat room that draws experienced traders from all over the world.

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  • Dale December 20, 2011, 4:56 pm

    I think you made DaBoyz mad Rick. Their out to prove you wrong… even if only for a day.

  • fallingman December 20, 2011, 4:37 pm

    The overnight ramps are getting ridiculous. It’s so transparent and so predictable.

    For what it’s worth, I’ve never seen a slower retail scene a week before Christmas than this weekend. It looked like a mid-February weekend in Western NC. I really don’t care about sales figures personally, but I couldn’t help but be struck by how dead every place was. That’s in stark contrast to previous years when traffic was a nightmare and you had to wait to get help, etc.

    The markdowns were massive in the department stores and yet, we had LOTS of elbow room. I wouldn’t want to be a retailer as the sun sets on the empire.

    • gary leibowitz December 20, 2011, 7:53 pm

      In just today’s headlines on Bloomberg we have the following:

      Payroll rose in November in 29 states.
      Housing starts jumped 9.3%, hishest in year.
      Spain borrowing cost slide on 7.3B debt sale.
      German business confidence unexpectedly rises.

      I have heard that on-line sales have surged this year.

      Once again, based on data coming in, I would not conclude retail sales will be weak.

      The next 5 days could be the Christmas rally everyone was expecting. I wouldn’t be surprised if the move takes us 1,000 DOW points higher.

      I don’t buy into conspiracies or market manipulation. When the market drops 10 percent there is no manipulation? You can’t have it both ways.

      With all the volatility the bottom line is that P/E ratios are on the low side. It’s all about earnings.

      Thats not to say I don’t expect another big drop. It will happen when earnings disappoint and more importantly when future expectations are taken down.

    • Cam Fitzgerald December 20, 2011, 9:38 pm

      I agree Gary. If today is any indication of what is coming for the few remaining trading sessions this year then my hypothesis will hold. Very nice rally too but the caveat being it was perhaps too strong and these often don’t hold.

      We will see. I am still calling for a reversal of the dollar/euro trade and anticipate it should run for several weeks. If that holds then there is a good set-up for markets to see an overall rise through January, even into early February. With luck the charts will give us some confirmation today and tomorrow.

      After that is anybodies guess. I try not to look too far out. It always gets me into a negative funk when I do that. There are just too damn many black swans and wild variables swirling about waiting to wreck all our best laid plans.

      In any case, my biggest investing worry for the coming year is not even Europe. I have no doubt at all that solutions will be found there and the Euro will survive…..no, my biggest worry is China and the bursting of the property bubble. That bad day has arrived and the tears have only just started over there.

      That is going to be 2012’s big story as I see it. From what I know a hard landing is surely in the cards. China is very vulnerable economically. They have over-invested in capital and property such that any slowdown will trigger real grief. They do not even need to see an actual recession to feel the pain. Growth slowing to 6 or 7% GDP is more than enough to kick sand in commodity markets globally and stress the hell out of the Peoples Government.

      You know what they say, “the bigger they are, the harder they fall”. In China’s case the Achilles heel has been an over-reliance on the domestic build-out and an economy that is not really all that well diversified. It is nothing compared to the US or Europe for depth or scope.

      When you consider how restrictive the financial and banking sector there are you will immediately appreciate that the soft spot is actually pretty big. Chinese investors simply have no good options when it comes to building wealth and generating income. This is a one or two trick economy that is a facade based around manufacturing for the globe.

      I think most people do not appreciate just how weak that country really is. Piles of investments in Treasuries that are controlled by the home government mean squat. We need to appreciate how controlled and contrived the system there really is.

      It should give us all a whole new perspective and appreciation for how open our own economy is where investing is concerned. We have the freedom to do almost any damn thing we choose, anywhere on earth, anytime day or night.

      Chinese citizens do not enjoy our kind of liberties.

  • gary leibowitz December 20, 2011, 4:09 pm

    A strong dollar despite our financial problems is not so unusual considering the alternatives. The domestic market is showing traction. I wouldn’t bet on a bad Christmas season. In fact everything is pointing to a good holiday, not seen in years. Granted it is based on old habits of dipping into savings and higher credit card use.

    The market is held down by the strong dollar. Any signs of a dollar weakness, ala good news from the EU, will cause a big equities/gold rally. I wouldn’t discard a late Christmass romp just yet.

    Going forward a world slowdown is in the cards. Ironically while domestic economic conditions continue to improve, the bottom line corporate earnings will be lower. Thats what drive markets, not how well our economy is doing. Based on Reuters downgrade of the SP500 earnings prospect,s late January should see another big equities drop.

  • mava December 20, 2011, 7:52 am

    Perhaps, no mad rush around shopping centers is a very good thing for America. We do not need another “check-mark” Christmas present. Most Americans have so much crap they can’t park their cars in the garage! And the debt, way above the head.

    Yet, many wish for that glimmering pyramid of Chinese junk in red and green wrappers.

    I actually am surprised to see lower sales numbers. I expected Joe Six-Pack to pawn the junk from last Christmas, and to load up on more junk.

    But they are not. Good! What America needs is to let few years slip without changing for another, bigger flat screen TV, without Christmas junk from China, without a new car, without half of the food they regularly waste their money on. I estimate that we can actually stop shopping for at least five years, without getting any dent as far as the things we really need.

    I can already hear the arguments of all the Keynesians: “What about the sellers, the dealers, the manufacturers?”. What about them? Last I checked, their economic purpose is to satisfy the demand that they also must correctly estimate. So, may-be they are so lazy these days, racking up their easy profits, that they have forgotten their economic purpose? That they just expect us to provide the demand for their stuff, whether there is an actual need or not?

    No. Those who made the mistake in estimating the demand need to go broke and be parted with their money in favor of someone who will do it better. As for the rest of us, we need to save, after all we need to still pay for all the debt our “elected” fearless leaders have racked up (all for our own best, of course).

    Personally, where I live, I have observed quite a few fools saying good bye to their funds, and vacating very expensive retail premises they had proudly leased very very recently. A brand new shopping mall with a movie theater is displaying about 50% empty space. It’s getting unsightly, so much so, that the landlord is setting up fake clothes displays right next to the windows and blocking the rest of the space from view.

    Both, the landlord and the tenants are well on their ways to part with their money as they should be, as they were not having their businesses ran in a prudent way.

    Instead of “shop-till-you-drop”, we need to pick up an another challenge, much more prudent one, much more American: “let’s-see-who-can-abstain-from-shopping-longer”!

  • ProfitsOn December 20, 2011, 6:38 am

    A decline of the euro/usd might plunge stock indexes as well. The two markets are correlated.

    The euro/usd has clearly moved below the neckline of the past 12 months. It could eventually target the lower channel line at 1.28/1.26.

    The trend is bearish for the euro, considering the implication of the European crisis and adverse seasonal conditions during the first part of the year.

    There is a great risk in trading.


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