Is The Government Playing The Short-Squeeze Game With Your Tax Dollars?

This market is oversold in a big way. Get ready for more bear market rallies coupled with a healthy dose of cheerleading and denial by the financial media.

No doubt some talking heads will be describing today’s action as capitulation. Cramer was his consistently confusing self as his reverse course sell refrain hit the airwaves and his viewers’ wallets today. He said stocks could fall 20% and to get out. Being that they’ve fallen more than that already he must have meant another 20% from here. Either way, he’ll make it up as he goes along. It’s show business folks!

Stocks fell sharply early down over 700 points on the (DJIA) (^DJI) but made a furious comeback late in the afternoon to close down by half that amount. Who was buying? That squeeze may have been the opening act of your tax dollars at work. Nothing would surprise me and generating short squeezes has been the government’s primary objective. Reverse Repo’s from the Fed have been running around $25 billion per day as the Fed “drains” reserves from the system.

Volume was very heavy giving capitulation peddlers’ ammunition. Breadth was as bad as you might expect.

I expect there will be plenty of continuing countertrend rallies to confuse everyone. That’s the nature of this beast.

We have not yet seen capitulation in my opinion. That will happen when all the captive money in wrap fee products with wire houses and investment advisors gets busted. Before that happens brokers and advisors will fight furiously to prevent it since their fee income and life-style will be hurt. You can rest assured many product peddlers will be marched in front of TV cameras reminding investors about investing for the long-term and blah, blah, blah. But, having been in the advisory position for many years I can imagine phones are ringing off the hook with clients wondering whether they should follow Cramer’s advice and sell. If and when that should occur things would get ugly fast.

Disclaimer: Among other issues the ETF Digest maintains long or short positions in: SDS, SIJ, SMN, QID, SDP, XLY, SCC, IYR, SRS, IEF, GLD, DGP, DBC and DEE.

Posted in Categories: Contributor, External Research, Stocks, USA.

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