I think last week's 1400 point move was the mutual fund managers 'juicing' the indexes for the month end statements. Notice anything about it? They didn't get sold into. That tells you - or screams at you - that the forced margin selling is most likely over. That's the good news. Yesterday's 700 point drop was on low low volume which tells you the majority of it was most likely selling of those juiced up buys last week. However, we stopped right at the 50% retracement level and today bounced nicely with the majority of the action in the last 30 minutes of the day. Again, screaming at you that the margin selling isn't there anymore.
So, I think that guy in that video is right on. The rally we're about to get here lasting into July as he says is going to be caused by the $6 trillion of cash not wanting to miss the boat. The 10 year bond right now is in a bubble and all that money that's putting it at record low yeilds is going to need a home.
Once SPX 850 gets taken out, then watch the $SOX and $RUT. What's interesting to me is the numerous calls on buying the $SOX stocks. Why? Well obviously because not only is the industry at levels below 2002's lows, they are mostly cash rich and still doing very well. There's an unspoken explosion in smart phones right now and that's why many are doing just fine regardless of what the stock's are telling you.
Cramer tonight had a great mention on how leveraged ETFs are at the root of the problems in the market. If you buy a triple leveraged inverse ETF, such as the TXA for the Russell 2000, every dollar you buy into that ETF becomes a triple short in the index. With so many of these out there and with so many using them as hedges rather than buying puts like you used to have to, it's created a huge drag on the market that didn't exist just 5 years ago. So, if you buy a stock and then say buy 1 share of a double or triple negative ETF, you're basically causing your long position to not be able to get any traction because you don't realize it but you're shorting against your long twice or triple the amount.
Before you had to simply buy puts or arb your trade by shorting another stock against your long one. IE, buy MSFT and short YHOO.
Buying puts puts no pressure on the market. It's one of the reasons they got rid of the uptick rule. That rule prevents these ETFs from properly working because they can't short into the market at every buy of the fund. So the fills wouldn't be instantaneous or worse, the spread in the bid/ask would be so great to offset that problem it would render the funds useless and no one would buy them.
So, I think you're going to see some action next year that kills these things. That alone would probably jam the markets up.
BTW -- you see Fast Money talk about SLW? Najarian says a guaranteed double and most likely triple by Feb/Apr. Only $3.50
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