Stocks spike higher on end-of-month positioning

Monday, March 30, 2015 -

Equities were pushed higher in the overnight futures markets, usually evidence of central bank intervention, and gapped strongly up at the open today – managing to hold the early spike through to the close – but still negative for the month.

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Having prices broadly descend below the 50-day moving last week averages brought out a number of “buy the dip” programs and traders on Monday as the end of March and Q1 2015 approaches on Tuesday. The end result was a sharply higher market with most indexes gapping up on the open and closing near the highs of the day.

The Dow soared 264 points (+1.5%) to 17,976, the Nasdaq jumped 56 points (+1.2%) to 4,947 and the S&P 500 surged up 25 points (+1.2%) to 2,086. The NYSE finished at +1.05% and the small cap Russell 2000 at +1.4%.

While end of month and end of quarter window dressing along with a short-term oversold environment lent technical support for a rebound as stocks fell below the 50MA, buy-the-dip buyers were more than willing to jump in again when the saw the selling stop on Friday, as the Dow and Nasdaq fell to their lowest levels in over a month.

I don’t see this holding.

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More Central Bank Stimulus

It also didn’t hurt that the People’s Bank of China governor Zhou Xiaochuan hinted that stimulus measures may be warranted in China because the Chinese economy has slowed “a bit too sharply”, especially with the threat of deflation hanging overhead.

I suggest that today’s spike rally was several things working together, with central bank influence from around the world desperately trying to halt the strong sell-off seen in March.

We have proffered so many economic reports that show deflation as the pre-eminent problem facing all world economies here at what feels like the end time for a long bullish market. This is one of the longest bull markets we have seen.

And when you get China officially proclaiming that their economy is slowing too sharply it should raise risk fears of a coming recession. Instead, their central bank does the same as other central banks – follow the Federal Reserve and resort to currency debasement through printing money.

It doesn’t matter to the bank portfolio managers that economies are struggling. They know they can be first to the window then real selling is necessary. Right now they are more than willing to pump up prices on more promises of stimulus, hoping to transfer excess shares to someone else.

We have market investment making long term investment decisions based on economic weakness. The most favored investment technique in the world is to bet on the central banks printing up more money – and it doesn’t matter what country’s central bank does it or what currency it is. More money into circulation means rising prices for the equity bubble.

Risk measurement has become a thing of the past to many investment management strategies. Is everyone responsible for portfolios willing to bet that this time is different? That this bubble will be able to go on and on and on?

Crude Oil Twist
Confirms Intervention

To help you understand that today’s spike rally was a manipulated across the board event, unrelated to risk or fundamentals, we only need to look at what happened to crude oil prices.

Crude oil fell another 19 cents today, ending at $48.68 a barrel. And yet oil stocks posted particularly strong gains, driving the NYSE Arca Oil & Index up by 2.1 percent. With the gain, the index reached its best closing level in almost a month.

Check out crude oil against crude oil stocks:

50330Crude-vs-EnergyStocks

Traders and bank desks were buying today because of the broad market “put” from central bank jawboning and promises of further stimulus, not because of fundamental data or economic risk analysis. This was a speculator’s move today in a pattern that shows a stronger and stronger topping formation.

The entire globe rallied today, in part on technical oversold conditions and in part on promises of further stimulus measures. Japan’s Nikkei 225 Index advanced by 0.7 percent, while Hong Kong’s Hang Seng Index surged up by 1.5 percent. While the U.K.’s FTSE 100 Index rose by 0.5 percent, the French CAC 40 Index climbed by 1 percent and the German DAX Index jumped by 1.8 percent.

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