Enjoy the 10,000s While You Can

So where are we at? Every single economic indicator is overheating to the red side, and the bears have completed a market renovation that generated the opposite effect of raising the roof. The bears seem to have lowered the roof from 11,200 to 10,200. A rangy market should now run up against resistance at the 10,000 level.

An old JV football coach I know would hammer a player who had not executed properly by saying, “do you see this grass?”, as he bent over and ripped a handful of grass out of the ground, and began methodically instructing the player, while waving the grass in the player’s facemask, “Look at it good; touch it, feel it, smell it, taste it if you want, because you will never step on the grass of this field again.!” It was a rhetorical ode to how great it is to play the game, to just touch or fell the playing field. I thought of this, as I looked at our Daily Open Contract Value analysis today, and saw that the total US Dollars in daily open short positions has decreased by roughly 20% since the Flash Crash era. With volatility up, and some volume (and I stress “some” volume) in stocks, the shorts were finding wider breadth, and used the rally to 11,000 to hunker down and add size by getting some higher prints selling into the rally. The opportunities were immense in what was largely a suckers rally. When the downside behavior began and the retrace from 11,200 to 10,200 and below began, I said on CNBC that I thought the shorts had lowered the roof to 10,200, and with the disappearance of volume the shorts seemed to be sitting pretty. I proudly proclaimed that S&P 950 was an intermediate target where the market would have experienced some good Stimulus Cleansing. In the mid 9’s, much of the artificial stimulim which was hurled at the markets by the Fed and Treasuries policies should be cleansed. There will be more to do, and the same way the Flash Crash Lows had to be tested, they were. The 2009 March low, 6800, also looms ominously as another magnetic metric that could need to be tested to insure full cleansing. The shorts that use the Locatestock MATADOR platform haven’t demonstrated any significant adds to short positions, nor covering, over the last month or so. As well, there is a growing discussion out there that the hope of good earnings may be disappointing, to say the least. I think to have a bullish view here, that things will trade above 10,200, I would advise you to look at the number 10,000 and touch it, feel it, smell it, and even taste it if you please, because in my humble view the shorts have it right, and its highly doubtful you will see this market in the 10,000’s for much longer. It shouldn’t return to the 10k’s for some time. But fret not those bulls in the club, much like that player did actually see the field again, you too will see the 10’s again. Only thing is, it may be after an extended period on the bench. Shorts seem to be in the game every day, finding over-valued plays in single stocks. Yesterdays hot shorts would have returned you a .36% return on an open to close short trade on all 5. Not too shabby, but well below our average day one open to close return of +.54%.

HOT SHORTS
Here are today’s:

CIM ORITD IYR DCTH LVS

Sleeper pick here: trades thin, but there’s some short interest around ZGEN