Wild Day on Wall Street

The action in the homebuilders was totally whack. On a day when traders were fearful of anything mortgage/housing related, someone spreads a plausible, but apparently false, rumor that BZH is preparing to file for bankruptcy.

Just imagine if the rumor monger had built a large short position in BZH and/or the homebuilder index prior to spreading the rumor. And just imagine what would happen if the rumor monger started slamming BZH and the homebuilder index after he was sure the really big dogs with alot of firepower were aware of the rumor.

Now the big dogs notice what’s happening with BZH and start shorting/selling based on the price action. Now anybody who has the homebuilders on their watch list notice the huge freefall in price on huge volume, and they join in the panic slamfest.

This scenario would create phenomenal trading liquidity for someone with a huge short position to cover at great prices.

Cockroaches, and rumors of cockroaches.

barry, what is your theory on the last 30 minutes?

i don’t buy the short covering argument at all.

Bouncing off the 200 MDA sounds like the handy the work of the PPT. Michael Shedlock had an interesting conversation with himself about this yesterday:

http://globaleconomicanalysis.blogspot.com/2007/08/ppt-exposed.html

Let’s call it defending key technical lines in the sand:

The S&P 500 briefly breached its 200-day moving average (1450.38) Wed. morning. The 2nd attempt to keep the stock market from imploding pushed the S&P 500 back above its 200-day moving average.

The DJTA fell below it June low in the morning but the second rig pushed it higher.

However, in the afternoon, stocks tanked. If not for the 30-handle SPU surge (in less than 30 minutes), the DJTA would’ve closed below its June low of 4994 and triggered a Dow Theory Sell Signal that would’ve been widely publicized and disseminated. Also the S&P 500 would’ve close below its 200-day moving average.

A mother load of shorts was caught in this trap. The move was completely unexpected and the shorts did not cover. The shorts are still in shock and disbelieve – soon they will be covering when they come to their senses.

This is a multi-step process:

1. Lure the short into the trap with some sort of B.S. scare (like sub-prime nonsense)
2. Catch the shorts with a brisk up move when they least expect it
3. Put the shorts through a painful without any anesthesia squeezing procedure
4. Crush them and force them to cover at much higher prices
5. Resume the bull market at new highs

The media is partially responsible for the recent panic sell off. The media concentrates on a few out of thousands hedge fund losers and scares the investors. Investors panic after reading their nonsense; hedge funds get redemption requests and forced to sell good solid companies.

A few hedge funds lost money. So what? After all the money does not just disappear, it simply flows into another hedge fund account. Why do the media write about the winners, there are thousands of hedge funds making a ton of money?

I agree, the media distorts the reality by concentrating only on a few losing money hedge funds and negatives.

I guess, scarring people sells more newspapers for them…

Agree Barry….HUGE selling was exhausted, sentiment was punk, and the opportunity to hold a trendline gave the “”gunners” a green light to spark a melt up.

Correction is done (mostly). HUGE corporate insider buying last week.

Bill Miller is out buying some housing, specialty finance, and high grade bank loans in the teens, in his Opportunity Fund….awesome track record.

One thing is forever certain. There will never be a shortage of lemmings ready and willing to jump off a cliff.