August 22, 2013 2:41 am GMT Like the carnival midway, on Wall Street nearly every thing that happens is a rigged game. Customers exist to be fleeced, and the bunco artists who do the fleecing are just Ivy League-educated carny men with their own versions of the whirling spindle, the devil’s bowling alley, cats on a rack, the cigarette shooting gallery, the six-ball rolldown and the hurdle ladder. The main difference between the carny men and Wall Street’s best and brightest is that the latter have better teeth.
Currently, one of the more popular scams they’ve been plying involves goosing stocks higher each day no matter what the news. Paradoxically, this usually begins with stocks diving on the opening bar. The purpose of this set-up is to exhaust sellers, allowing the flim-flammers to accumulate some inventory at fire-sale prices before running shares back up the bears’ wazoos.
Bomb-Proof Stocks
With corporate earnings falling, incomes stagnating and mortgage rates in a steep ascent, one might expect share prices to be collapsing. Instead, the stock market is being held aloft each day by rallies in a select group of stocks that are assumed to be nearly bomb-proof: Amazon, Netflix, Priceline, Google and Apple. Much as the prudent investor might want to offload shares these days, it is psychologically difficult when the lunatic stocks are pushing double-digit gains early in the session.
Lately, though, even these stocks are getting dragged down by the weight of the broad averages. Yesterday, for example, most of the hot stocks were up 1%-2% in the early going. By the final bell, however, only two of them — Apple and Google — were still holding gains, albeit well off their highs. What this suggests is that DaBoyz are finding it increasingly difficult to hold the high-fliers aloft for long enough to distribute shares in other, far duller companies. This was painfully obvious yesterday even when DaBoyz tried to leverage the latest piece of obfuscation from the Federal Reserve. The release of minutes from the central bank’s last meeting told us absolutely nothing, and yet the Dow Industrials did a nearly 300-point whoopsy daisy as DaBoyz attempted to milk the non-news for all it was worth.
Preparing for the Inevitable
We don’t know how long this excruciatingly stupid game — an embarrassment to civilization itself — can continue. but we took steps a couple of weeks ago to prepare for the worst with a recommendation to buy DIA September 140-135 put spreads for 0.11. Yesterday the spread was offered for 0.37, allowing traders to take off half the position and retain the other half effectively for free. The spread remains a longshot because the spread is still well out of the money. But with virtually nothing to lose, we can sit back and enjoy the show if investors should come to their senses. When that day comes, as it surely must, the Dow will be trading 3000 points lower in a trice. In the meantime, we can afford to be patient. Click here for a free trial subscription and join the fun!
***
·
No comments:
Post a Comment