We have heard many times about the smart money on the sidelines, waiting eagerly to enter the Market. That is a huge fallacy. As The Trader wrote in May/June, the smart money sold the Top, and stuffed the average Joe at the Top. From our June 3rd post;

Both Goldman (IPO 99) and Blackstone (IPO 07), top trading firms in the world, went public near the very highs over the past two great rallies. Today we are getting Glencore IPO priced. According to many, people at Glencore are even more intelligent than the Goldman guys. Is this another perfect market top timing?

Both Goldman (IPO 99) and Blackstone (IPO 07), top trading firms in the world, went public near the very highs over the past two great rallies. Today we are getting Glencore IPO priced. According to many, people at Glencore are even more intelligent than the Goldman guys. Is this another perfect market top timing?

and how did they time it? Well great. Smart money sold the Top yet again, and people still believe the fallacy of capital on the sidelines. Forget it.

XLF and BAC coming off, again. No bounce up without the Financials….

The “global saving glut” (GSG) hypothesis argues that the surge in capital inflows from emerging market economies to the United States led to significant declines in long-term interest rates in the United States and other industrial economies. In turn, these lower interest rates, when combined with both innovations and deficiencies of the U.S. credit market, are believed to have contributed to the U.S. housing bubble and to the buildup in financial vulnerabilities that led to the financial crisis. Because the GSG countries for the most part restricted their U.S. purchases to Treasuries and Agency debt, their provision of savings to ultimately risky subprime mortgage borrowers was necessarily indirect, pushing down yields on safe assets and increasing the appetite for alternative investments on the part of other investors. We present a more complete picture of how capital flows contributed to the crisis, drawing attention to the sizable inflows from European investors into U.S. private-label asset-backed securities (ABS), including mortgage-backed securities and other structured investment products. By adding to domestic demand for private-label ABS, substantial foreign acquisitions of these securities contributed to the decline in their spreads over Treasury yields. Through a combination of empirical estimation and model simulation, we verify that both GSG inflows into Treasuries and Agencies, as well as European acquisitions of ABS, played a role in contributing to downward pressures on U.S. interest rates.

Full FED report, click here.

As the market was sold aggressively into supporty levels by the end of last week, we are seeing some bounces in all Markets this Monday. Many markets are trading in almost “uncharted” territories. Note several markets are trading very “distant” from the 200 day moving average. This is not telling us to go long, but is showing how extreme the sell of has been. With HFT dominating all trading, and there is a lack of liquisity, the move up could be very furious. Below DAX, Stoxx, S&P and Nasdaq. We expect the bounce to continue, until we get everybody long. Also note the Stoxx is up some 35% from the bottom in 09, while the S&P is still up some 70% from the magic 666 (not deducted for the USD weakness).

Small reversal intraday in Gold. Is the long gold trade too crowded short term? With the trend gone exponential, expect a short term correction, since people have been buying gold in Panic lately.

….and for the Daily Gold by Gold Core read below;

All major currencies have fallen against gold and silver again today with gold reaching new record nominal highs in most fiat currencies including U.S. dollars. Gold reached a new record of $1,894.80/oz – just shy of $1,900/oz.

Gold is trading at 1,870.10 USD, 1,296.40 EUR, 1,132.40 GBP, 1,470.90 CHF and 143,670 JPY per ounce and has risen some 1% in all currencies. Gold is particularly strong against the yen and Swiss franc which have fallen in international markets on concerns of debasement.

The London AM fix was a fourth consecutive record nominal high in US dollars. Gold’s London AM fix this morning was USD 1,877.75, EUR 1303.17, GBP 1139.55 per ounce (from Friday’s USD 1,862, EUR 1299.28, GBP 1126.91 per ounce).

Silver is in all major currencies and has risen another 1.4% in dollars after last week’s 8% gain.

Gold’s 6.2% rise last week and silver’s 8.2% rise was barely reported in the press and media in Europe over the weekend – with all the focus continuing to be on equities and to a lesser extent bonds. The usual suspects in stockbrokerages and banks warned about gold being a bubble again. 

Silver was not reported at all and remains almost completely taboo in the non specialist financial press. Besides the very occasional article warning that it is a bubble. 

According to Bloomberg, the central bank of Venezuela has sent a statement by e-mail requesting its 99 tons of gold holdings from the Bank of England, citing the institution’s president, Nelson Merentes. 

GOLD SPOT $/OZ

“We’ve contacted the Bank of England and the corresponding protocols have been initiated to complete this operation as soon as possible,” Merentes said, according to the statement. “Once that’s done, the shipments will begin by sea.”

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As we mentioned earlier this morning, the first signs of a bounce are to be seen. Below Stoxx and Dax intraday levels to keep track of. We are still below the resistance levels, but that could change very fast, as there seems to be an asset allocation programme in the market.

Presented without comment;

With the markets showing the first sign of a potential bounce and some short covering, let’s review the Sentiment Indicators by Technical Take. With only HFT Machines churning today again, expect volatility to persist and the market to move on no liquidity.

The “Dumb Money” indicator (see figure 1) looks for extremes in the data  from 4 different groups of investors who historically have been wrong on the market: 1) Investors Intelligence; 2) MarketVane; 3) American Association of Individual Investors; and 4) the put call ratio.   This indicator shows extreme bearish sentiment, and this is  a bull signal.

Figure 1. “Dumb Money”/ weekly

Figure 2 is a weekly chart of the SP500 with the InsiderScore “entire market” value in the lower panel.  From the InsiderScore weekly report: A week after our strongest quantitative sentiment signal, the Industry Buy Inflection, was triggered across all tracking groups, market-wide insider sentiment actually improved, remaining extremely bullish in the process. The number of buyers jumped 50% and the number of sellers fell -5%. Some of the increase in buying is due to the last big spate of earnings announcements unlocking insiders, but that doesn’t account for the decrease in sellers.

Figure 2. InsiderScore “Entire Market” value/ weekly

Figure 3 is a weekly chart of the SP500. The indicator in the lower panel measures all the assets in the Rydex bullish oriented equity funds divided by the sum of assets in the bullish oriented equity funds plus the assets in the bearish oriented equity funds. When the indicatoris green, the value is low and there is fear in the market; this is where market bottoms are forged. When the indicator is red, there is complacency in the market. There are too many bulls and this is when market advances stall.Currently, the value of the indicator is 49.45%.  Values less than 50% are associated with
market bottoms.  Values greater than 58% are associated with market tops.

Figure 3. Rydex Total Bull v. Total Bear/ weekly

Full reading, click here.

With crude futures soon opening for trading, rebels are seizing control of Tripoli. Ghadaffi’s four decade long ruling of Libya is reaching it’s last moments. Reuters reports;

Rebel fighters streamed into the outskirts of Tripoli on Sunday with little sign of resistance, despite a call by Muammar Gaddafi for citizens to take up arms and save his 41-year-old regime from annihilation.

A convoy of rebels entered a western neighborhood of the city firing their weapons into the air, a witness said. Sky television said some fighters were only 8 km (five miles) from the center and were being welcomed by civilians pouring into the streets.

Thousands of rebel fighters were seen earlier in the day 20 km (12 miles) west of the city center, aiming to join fighters inside who began an uprising late on Saturday, a Reuters correspondent said.

“I am afraid if we don’t act, they will burn Tripoli,” Gaddafi said in an audio address broadcast on state television. “There will be no more water, food, electricity or freedom.”