Twisted Short: A Turn?

Sometimes sharp moves at the close are just that, sharp moves. They sometimes mean something but often do not. in fact, many late day moves in a given currency commodity or stock are generally unwound to some extent in the days that follow. So when I see something, like the late day rally in the S&P from 920 toward the 936 level on the close, in the last 30 minutes of trade, I say to myself, "is this a useful meaningful bounce" or "is this a head fake to set up a short?" In a bear market, the easy answer is that the move was a short squeeze and a great setup for a sale. In a bull market, the buyers would take it to buy more the following day.

So in looking at things on the close Friday, I could make a case for both side of this. In terms of the bullish case, here are the facts

• The Yen hit lows this week and never really recovered for the most part. Sellers came out near the end of the day keeping the level down. Meanwhile the Euro was modestly higher meaning the Euro yen was moving higher on Friday.
• With the bounce at the end of the day, the FXI was able to finish up on the week. Given the meltdown in the Dow, S&P and NDX, this could be a strong statement on stability in China. Adding to this was the EEM's move past trend. A follow through in the open could indicate further strength.
• Two sectors with much stress lately: Real Estate and the Financials, both had big moves with the former breaking past a major trend level and the latter jumping hard (with more improvement needed like the SKF breaking down).
• The DIG shot up on the close while the DUG collapsed on the close. If these undervalued stocks jump (their PE's are way to compressed), then this could provide a lift for the markets to bounce higher.

On the bearish side, there are still some lingering problems

• The Euro/Yen rate moved higher on the close but both the Yen and the Euro sold off versus the dollar simultaneously. Generally speaking, this is a change in character as the Euro has been rallying with stocks and the Yen has been rallying when stocks sold off. Thus, perhaps the guiding light of the Euro/Yen might not be as strong as it was before which could create some extra volatility. This leads to another never ending level of uncertainly.
• Treasury yields sort of held in all week and did not rally much on the close Friday. This could be an indication that many are not sold on the rally.
• The semiconductor stocks remain weak and without a rally in this sector, then tech stocks cannot get out of their own way and thus the NDX 100 will not rally.

So as it appears there is evidence both ways on this subject. I am positioned in what has been a bearish position lately versus stocks. However, if the Euro/Yen cross does not matter as much, then my position really has not forecasting ability in this case. On the stock side, I am long stocks (having covered all the shorts Thursday) but not long the indexes - the tides just don't look strong enough yet. Thus the bounce may continue into Monday but I remain skeptical beyond.

Random Notes: Thinking that if the Yen can get over par, things will really starting motoring on the stock side...interesting action in the gold market these days as it won't give out beyond the 700 level - thinking that the copper market needs to bounce for gold to bounce....Option compression on Friday, even with the rally was remarkable. The bears continue to hold the keys.