The Magic Hand Appears Again But These Charts Show It Will Cut The Cord

The Magic Hand appeared again yesterday, just when it looked as though all was lost.  Is this the bottom?

One thing is certain. I pointed it out in a chart the other day which I have updated below right up to this morning’s action. There is a crucial support area from 2590 to 2630 on the S&P 500. Yesterday it was stretched beyond the limit, when suddenly, out of nowhere came the Magic Hand.

In this instance, the bulls can thank the shorts again, because with liquidity tight and getting tighter, there’s not enough intrinsic demand for stocks to mount a massive, lasting rally. But in a market that has become thin because prices have crossed the same range over and over, short covering can drive a fast rally. But only until the short covering exhausts itself. And those times are getting shorter.  

Nevertheless, when the earth is in its final hours, with the core about to explode and obliterate the last remaining vestiges of life, there is one thing that you can count on.

The shorts will cover.

I remember the old saw of the ancient, white haired, wise men traders I sat with in customers galleries at Walston and Company back in the late 1960s and early 1970s, when bear markets were the rule:

He who sells what isn’t his’s, must buy it back or go to prison

And short sellers have hair triggers. Once they see that support isn’t breaking down, they pile in all at once to cover their positions. That also tends to pull in a few long side buyers who have cash. They’re in short supply now, however.

Ultimately, each of these short covering rallies weakens the market because they deplete the demand that is coming from short covering. So, what about short interest today? Will it continue to drive rallies every time support is threatened?

Examining Primary Dealer and customer shorts gives us some obvious answers

Despite What Wall Street Tells You, Actual Jobs Data Gives Fed No Reason To Slow Tightening

The Wall Street captured financial “news” media blasted us with the usual misinformation in the wake of Friday’s nonfarm payrolls report. The big guns of financial infomercialism blasted us with the notion that the reported gain of 155,000 jobs in November “missed” economists’ expectations. The consensus guesstimate was for a gain of 198,000. 

Here’s how CNBC put it:

Job growth falls short of expectations in November: 155,000 payrolls created vs 198,000 estimate

“Markets have high expectations for a December rate hike, but a slowdown in hiring in November appears to give Fed officials some room to slow down their hiking path next year.”

Of course, that was the seasonally “adjusted” number, which as often as not bears no resemblance to what actually happened. The seasonally fudged number is subject to 2 monthly revisions and 5 annual revisions thereafter as the statisticians fit the abstraction to reality over the next 5 years.

In the meantime, we can look at the actual data right now, make a few comparisons with years past, draw a few lines, and see reality as it currently exists, without waiting 5 years for the seasonal adjustment process to be completed.

So let’s do that and see what actually happened in November and what it tells us about the stock market

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