You know, it's very funny you bring that up because so many have noticed that today. What it means is exactly what FastMoney talked about tonight -- panic. So many were shorting into the head and shoulders breakdown expecting 830 to 810 on the downside, they all got crushed. Many were selling calls short rather than buying puts. Today, those who were heavily short the calls had one of two options - either cover the short calls for big losses, or buy the stocks and create covered calls. The call volumes all over the place was enormous. Many were short this week's calls and were profitable going into today, only to get killed today.
By being forced to buy stock to cover short calls, they also then buy puts to protect those long stock positions. That gives you the jump in the VIX when it should have normally cratered to 20 on a day like today.
What does this tell you? It screams 'BS RALLY'. Or, panic short squeeze. Not a true rally.
The market is so screwed up right now. Think about it - would you normally get a 50 point 3 day rally in the S&P when taxes are set to climb as high as 70% on top earners? Huh? How about gold nearing $1000? Huh? The dollar falling to 3 month lows? Huh? The economy might be showing a little bit better signs, but how much growth do you expect with tax rates going from 15% on capital gains to 24%? The market CLIMBS on this?
Hell no. It's all about technicals and mechanics of over-leveraged short positions. Those of you like me who trade via Interactive Brokers might not have realized it, but when you signed the paperwork, you agreed that the company's software will at its discretion using their real time monitoring sell any margined position if you fall under the min maintance requirements at anytime during the day. Usually that didn't happen until you were given a margin call and 3 to 5 days to send in money. Now it's sold or bought to cover immediately.
So, if you were way upside down and looking to gamble to get even and you saw that head and shoulders breakdown, and decided to pile into a short position heavily margined, well, today was a very bad day for you and most likely saw your positions liquidated only adding to the rally. Multiply that by hundreds of thousands out there doing the same thing all day long and you can see how days like today happen.
I'm telling you this -- I hope one of two things happen -- the SPX runs to 1050 to 1200, or it falls to 600 or less. Why? Because both levels will be absolute certainties. At 1200, it's the mortgage your house short. At 600, it's the mortgage your house and your neighbor's long. Between here and there, it's a crap shoot totally manipulated by the thousands of people trying to get their money back doing crazy things which only add to the confusion.
Our QQQQ trade was a near triple in 3 days, had I held onto it. The reason I didn't was because the market could have just as easily fallen as it did rise. Live to fight another day.
AI
