End of the 3rd Quarter: September 24 – 28

On Monday the stock market was up on a trapeze, but the net was very close below. Any time the S&P has a slight misstep it was not allowed to fall below 1450. We are not seeing heavy minus tick which means institutions have not placed block sell orders. Complacency is at a zenith. It was the last week of not only September, but the 3rd quarter. We have not had a day where the manipulation was not present as once again the indirect correlation between bonds and the S&P was haywire. Early Monday morning saw a strong push that propelled bonds up one full point. The afternoon has had sideways action but the volume today is very anemic signifying that energy is abating. The situation between the S&P and the bonds has just become wicked. It was created by the Federal Reserve and will eventually create a sling shot whereby volatility will create equilibrium. The S&P did not have any energy Tuesday as Spanish uprisings were creating selling in the S&P. The way the S&P is absorbing the selling made me feel that it was not a beginning of a decline. However, Spain is having revolts regarding the austerity program. This is sending shivers throughout Europe again as fear increases. The disparity between S&P futures and bond futures will eventually correct but is now in a violent scenario.

The support area at 1425 to 1430 was touched on Wednesday as this market reacted to international stock market selling. The magnitude of the decline is not as great as we have seen previously in this type of European economic news. We are witnessing something that I have not seen in my career of trading. A bubble, that was burst with a nine-point decline and then a straight up move without any hesitation. This type of action defies logic and common sense but it is what it is. There is too much, too fast in the push of these prices. However, the bonds have yet to show that a sharp decline is in the near future. These types of environments generally have a sharp decline.

There is very unsustainable selling pressure in this stock market. We came down from 1470 to 1425 with almost no minus tick. We definitely did not have overzealous minus tick as the highest read was between minus 1200 and minus 1300. This means that the institutions are not able or willing to lighten positions on an ongoing basis. I am beginning to see the tape action as constructive but also realize that this is the end of the quarter, which is sometimes misleading. Once again the bonds did not follow the inverse correlation they should have given the stocks rally.  This means that the manipulator is still endeavoring to hold bond prices. This diversion and distortion from where the bonds prices should be and where they are will eventually create a suction into an open void.

I am very excited about the 4th quarter 2012. I think we will see volatility and also some common send in regards to price movements. I am going to do a special advisory next week talking about seeing the big picture and assessing the probabilities surrounding one of the most critical quarters perhaps in financial history. The bonds penetrated to the highs of this week with a pullback. The energy is far less lately, but still we have not seen the Fed pullback from its ramped two-week buying spree.