from ZH: Seller Heavy Market Bid-Ask Stack Means Lifting Offers Pushes Stocks Higher As Increasingly More Shares Sold

Island reversal could set up for tomorrow or perhaps the breakaway on no volume is another alternative. In case, looks like exhaustion to me.

This is an intersting post on zerohedge...and is reflecting the crazy market dynamics that are effecting trading momentum and pushing us further in whatever direction the market is going than normal buying and selling dynamics would seem likely to do.

Seller Heavy Market Bid-Ask Stack Means Lifting Offers Pushes Stocks Higher As Increasingly More Shares Sold

Submitted by Tyler Durden on 07/13/2010 14:14 -0500

Welcome to reverse distribution. The Bid-Offer stack in the ES is telegraphing the intentions of market participants who can't wait to offload positions, yet are doing so in a way that is pushing the market higher: any bid-side interest is occurring via market trades lifting the ES price courtesy of a massive ask-side inventory which however is locked into limit positions and refuses to go VWAP or market. Yes - sellers outnumber buyers two to one, but unlike panicked shorts who are urgently covering exposed positions, are willing to wait to get their desired price. And with every lift, the NBBO ratchets up one notch higher, creating a feedback loop. The more ask side interest, the faster the market rips, even as the imbalanced market with much greater sell-side interest clears progressively higher! Nothing like selling causing rising prices in this latest installment of the bizarro market. 

Market Update

Depsite a strong rally...people wanted out at the close...even the shorts were not buying. Additionally the spread between leveraged and leveraged inverse ETFs are at nose bleed levels...this usually reverts back to parity with market weakness.

Lastly, the Russell is usually a leader and can give an edge. Theoretically this index should be at 645 to 660ish by now. It got crushed relative to the SP500 which is now very expensive vs the Russell.

Additionally, Goldman Tax said today "Bottom is in". Given the fact that you would have lost 300% of your collateral requirements or more based on their EURO calls over the last 3 months...I would say they bought when they recommended to short...and sold when they recommended to go long. I wonder what their case is with the equity markets? Reason enough to be very careful is the idea that Goldman and friends are selling into it while telling everyone else to buy. 

The ideal setup for the market would be to see mild selling if it were to occur tomorrow...followed by a reasonable close. This could allow us to move up to the 1070 to 1090 area which would likely be shorted by nearly all of the swing systems. Keep in mind that given the weakness under the covers of the rally today, upside follow through from here is optional not necessarily most probable.

SPY getting a substantial bid

Despite the weakness in the market. People are paying up for leveraged long positions. We'll see how this plays out. Usually we would see the reaction sometime tomorrow...should be a several day affair if that happens. However, I will be watching to see if leverages position get thrown out or continue to see demand tomorrow

SPY finally finding a bid

The exit from leverage has been slowing and the cash market is now modestly/relatively discounted...by rights there should be some attempt at rallying somewhere in here.

Market has a deep bid going on

If this is true then my previous right shoulder situation looks probable...given the demand for leveraged risk...this paints an interesting picture...RISK ON looks like its back for a little bit...could be a couple of weeks required to set this right shoulder...from my previous WEDNESDAY, JUNE 9, 2010 post: Click here to refer to it.

The market is not obligated to go up...but until the RVS daily swing systems take shorts...up or sideways is the path of least resistance near-term.

11:30 pm: I wanted to add one thing to this post...and that is  that what bothers me about this is that the buying demand for levered risk was just too strong/extreme. It was really strong and it has me wondering what's or who's motivating this move...though we can probably guess that JP and Goldman tax ad putting some that that fresh Fed/Government money to use. How surprising?

SPY is currently trading cheap and leverage is expensive

People are paying a premium to go leveraged long right now...

Bid is still under the market

SPY is sustaining a bid at this poing the leveraged "risk-on" is at a premium to the cash index

SPY showing up cheap for the first time in a while

We need to keep this up...and remain discounted to leverage for a while for the rally to remain bid.

SPY still not finding anything more that little bids...but we are nearing strong levels

SPY FINALLY Gets Cheap (a little)

SPY still not finding much of a bid

BGU is being sold for a substantial discount to SPY

People are willing to sell leveraged risk at much larger than normal discounts!

BGU is represented by the gray bars...so far today it has been drifting relatively far beneath the SPY cash price and the parity prices that would reflect a balanced market. When people will sell a leveraged instrument at a discount the market is valuing the "risk-off" trade.

This situation is currently on the extreme side...and I would look for some sort of bounce back closer to parity soon.

SPY is expensive

Market Finds a bid

If the SPY can continue to trades at a discount to leverage then there should continue to be a bid under the market and dips may continue to be buyable.

SPY is still expensive...

Risk is being sold...I will post when it changes

Russell 2000 and SP500 both still have bids and are discounted vs leverage

Market still has a bid - but projected close calls for a small pullback

Market Still has a Bid

SPY System Closes Long