Thursday, August 27, 2015 -
We are in the window dressing period, between end of August into the first week of September and stocks are taking advantage of the typically strong period of each month following extreme oversold sell-off conditions, managing to hold the rally prices now for two consecutive sessions – don’t make too much of it, though.
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Stocks moved sharply higher for a second consecutive trading day on Thursday, extending the recovery rally on what is likely strong short-covering. The gains of the last two days have offset about a third of the sell-off seen over the past couple weeks.
The indexes saw strong selling during afternoon trading, just about losing all of the rally gains, but on the last hour of panic buying the gains were restored as prices back to the upside going into the close. In fact, the last minute buying intervention was nothing short of ridiculous: The Dow went up 2% in the last 45 minutes of the session! . . . that is some serious intervention to hold the daily gains!
The Dow surged up 369 points (+2.3%) to 16,655, the Nasdaq jumped 115 points (+2.5%) to 4,813 and the S&P 500 shot up 47 points (+2.4%) to 1,988. The NYSE finished at +2.51% and the small cap Russell 2000 at +1.89%.
Asian intervention via China cutting interest rates and supporting their stock market helped the Shanghai Composite Index soar by +5.3% after falling sharply in recent sessions. Combined with short-covering and an upward revision to Q2 GDP, the central bank and their cartel had all the excuses they needed to pump prices back up and burn a few short traders along the way.
In overseas trading, Japan’s Nikkei 225 Index advanced by 1.1 percent, while Hong Kong’s Hang Seng Index shot up by 3.6 percent, taking their que from China.
The major European markets also saw significant strength on the day. While the German DAX Index jumped by 3.2 percent, the French CAC 40 Index and the U.K.’s FTSE 100 Index soared by 3.5 percent and 3.6 percent, respectively.
How long will this orchestrated recovery bounce last? About a week or so – IMHO!
Fear Dominates Rally
True, we are in the midst of a sell-off rally. But, who is doing the buying? I suggest it is not investors, but rather interventionist central banks and governments doing their level best to convince “real investors” that all is well and that we just are going through a minor correction.
Here is what happened to the Dow today: At the open it gapped up and rallied to the highs of the day (+380 points), sold most of the gains off and then under heavy handed buying in the last half hour those gains were magically restored:
Open gap—up 200
Mid morning rally—up 180
Mid-afternoon swoon—down 300
Late-day rally—up 330
That mid-afternoon swoon of selling was real investors trying to get out of their margin positions and reduce their risk profiles. The 330 point gain in the last minutes of the day was the banking cartel trying to keep the sell-off recovery tape painted pretty.
And get this – add yesterday’s Dow gain to today’s “ridiculous” gain in 45 minutes and the Dow just set an all-time best 2-day gain ever in history, better than any recovery rally since records have been kept. That is why this is even more “ridiculous” and unbelieveable – literally!
Here is a summary of the last week of Dow trading:
To me, this is more a sign of internal weakness than investor strength – so, be forewarned – this sell-off is not over by any stretch of imagination. There is just too much pressure being applied to paint a picture of financial health, here. It will likely backfire in September/October.
Just an intervention side note: Did you know that the Shanghai Composite Index gain of 5.3% also happened in the last 30 minutes of their market session? Prices in China were at the recent lows 30 minutes left and on intervention buying orders shoved like a firehose through a straw the index suddenly showed a 5.3% gain. That same act was repeated in the US markets today, though you will not hear it in any of the mainstream media reports.
Here’s how the big picture looks for the largest index in the world, the NYSE:
As you can see, this week’s two-day rally has restored about a third of the sell-off losses seen the last couple of weeks. Now pay attention to the highlighted yellow area – that is the trading range of the NYSE for almost 18 months, going persistently sideways since early 2014.
Now note where the 50% Fibonacci retracement line shows up – right at the bottom of this old trading range (prior to the sell-off). This level of prices should act as strong resistance for prices. We expect to see prices still advance some on this rebound but likely encounter resistance at this level, even if the resistance is overcome through heavy handed intervention.
Then we are likely to see the recent lows tested again – hold on.
GDP Massaged Up – Again
Today the Commerce Department said real gross domestic product increased by 3.7 percent in the second quarter compared to the previously reported 2.3 percent growth.
With the upward revision, the pace of GDP growth in the second quarter was reportedly even stronger than the 3.2 percent jump expected by economists.
Where do we start with this subterfuge?
First of all, the obvious – this revised GDP includes a huge statement of inventory increases (real or not). We also know that retail sales are not balanced with the stated inventory increases so it begs the question of what kind of inventory data will show up in Q3 and Q4 GDP. Remember what happened when large inventory data was present in Q3 2014? We saw a poor Q4 2014 and a negative Q1 2015. Expect to see poor Q3 and Q4 GDP if they even try to balance real inventory purchases and real sales.
Here’s a good one – government spending is added into the GDP calculation, but you and I both know that government spending adds nothing in the way of real Gross Domestic Production. But it does make the revision look nice and allows the administration flexibility to paint a rosy picture through continuous debt spending.
The BEA also makes the assumption that people who own their houses would otherwise rent them. To make up for the alleged lost income, the BEA actually assumes people rent their own houses from themselves, at some presumed lease rate. Therefore the imputed rent is an addition to GDP. But how is that Gross Domestic Production? It’s not!
We have reported numerous times how Gross Domestic Income is being added to show a better GDP figure and how movies and other media have recently been added into the calculations to help fudge the number higher, as well. In Europe they recently revised their GDP calculations to include unreported prostitution income and illegal drug profits. Is that what the US is starting to do?
Finally, if we look at GDP on a per capita basis it gets real ugly. The population is regularly expanding at about a 1% rate but even the fake GDP revisions we are being shown are running about 10% below the historic population growth trend of GDP.
A good question posed on another site today was, “Will the real GDP please stand up”?
Is all this massaging of GDP data necessary? Does the Federal Reserve need a solid rational excuse for raising rates after all? Who knows what the September FOMC meeting will actually bring.
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