What JPM means for the market

First let me start by saying there's a difference between gambling- just betting everything on red and having an edge like say, card counting.

Either way you are still taking a risk, but the card counter is going to come out ahead more often than not and certainly more often than the gambler.

It all comes down to probabilities, the gambler relies on chance, the card counter relies on probabilities.

So as JPM goes and a market bounce, from the last post  looking at the JPM charts, the probabilities look like Smart Money was aware of JPM's trouble and trouble like that doesn't just pop up overnight or in a week, it occurs over time and there's a lot of chatter on Wall Street.

Just as an example, you have two long time friends, one works at JPM and the other at Goldman Sachs; they have lunch together and one of the buddies tells the other, "We're in deep #$%^ because of that jerk Bruno". If you are the GS employee, sure you want to be loyal to your friend, but you'd also like that new head trader spot opening up that pays an extra $50 million, with the information you have, GS could stand to make billions shorting JPM and you could that advancement and fat pay day. Where are your loyalties now? Furthermore, if you know anyone who has ever worked on Wall Street, these aren't exactly the type of people who you might characterize as "moral" for the most part. I'd say the 80/20 rule probably applies, but it may be more like 90/10.

There's a thousand different scenarios that could lead to a leak like that and from the looks of JPM's chart (I wish I had seen this earlier when I was looking for a financial to short) it seems Smart Money already knew, so who's getting burned right now? Probabilities say retail while Smart Money is most likely collecting a very fat paycheck. These are the realities of Wall Street, I've always suspected it, 3C has shown me this a thousand times over the years, Cramer himself admits to it and as most of you know, I've had several meetings with a hedge fund manager in the last several months, dozens of meetings with a decent size financial firm, and dinner with a 40 year Wall Street veteran and former head trader for Dreyfus from the Bronx who told us a lot of stories that surprised even skeptical me. That's only a few of the contacts I've had/have.

So my opinion is Wall Street isn't getting burned, retail is based on the probabilities.

The JPM 15 min chart didn't look like any of the other 15 min positive charts I posted last night. I'll let you put together the rest of the pieces from there.

As far as the bounce, setting aside the 15 min charts from last night, we have this bit of news today that isn't very surprising, but is important-NYSE Short Interest is at 2012 Highs.


The Short Interest is at 2012 highs for good reason as you all know, but that doesn't mean that it will stay there. As Jesse Livermore said (paraphrased), "It wasn't being right that made me money, a lot of traders were right on the market, it was the sitting that made me money".

To put that in context, a lot of traders understood which direction the market was heading and were positioned for it, however when a short squeeze would occur, they'd get scared and cover, Livermore's "sitting" means he wasn't afraid to hold his positions in the face of a short squeeze, he stuck with the strength of his convictions and ultimately it wasn't being right, it was being patient and not being run out of his positions as the difference was, a lot of people were right, but only a few capitalized on it.

The way I see it, with short interest as high as it is, this is even more reason to have that one last shakeout bounce I have suspected was coming. Because the market is always unpredictable, but especially since I have expected it to become more volatile and more unpredictable, I and many of you didn't waste the bounces and we started our short positions over the last several months.

A bounce doesn't mean that much to me as far as the few speculative longs I put on yesterday in the model portfolio in anticipation of a bounce, the bulk of the model portfolio is short, I only hope to see a bounce so I can fill out a couple of short positions already in place and add a few in different industry groups. If the bounce doesn't come I and most of you already did the work, we're already positioned.

If the bounce does come and I still (even after JPM) think there's a higher probability it does than doesn't, than it's even better and I won't be scared out of my positions, I'll be adding to them based on months of analysis.

A short squeeze right now is the perfect time.

Honestly my biggest fear that could derail a bounce is the surprise news coming out of Europe, Wall Street can't discount it as they didn't expect it. What is happening politically there was in the hands of the population, not in the hands of a politician or central banker in which Wall Street could have had an inside track and all of the polling data suggested status quo would remain. Sunday night's elections were the biggest game changer for Europe since the crisis started and if anything derails a bounce, I suspect it would come from Europe and specifically Greece.

That being said, there's a certain amount of accumulation Wall Street needs to invest to get a bounce moving at least until the short squeeze takes over. Wall Street usually tries to see these things through once they've made a commitment to moving the market. The main obstacle to a bounce is the mathematics of whether whatever Wall Street has invested in manipulating the market to move it higher is worth sticking with or abandoning and that all depends on events that they have little control over right now-similar to the Lehman moment. This week I called the Greek elections, "Lehman X 1000".

For now, I'll keep holding the 3 short term spec longs I have in place. A bunch of new shorts chasing the market tonight in after hours only makes a short squeeze that much more appealing.

However I will not deny and I have said many times recently, the thin ledge the market has been standing on has broken, Wiley Coyote just hasn't looked down yet. I expected (as you know) the market to be more volatile as we continued forward and expected it to be more unpredictable, this is why any long position to play a potential bounce has been a speculative position, which means it's much riskier, risk management must be tighter. I deal with that in the same way I mentioned when I said I was taking on the positions, SMALL POSITON SIZE, basically speculative money.

So in conclusion, can we still bounce? Yes. Can the bounce be spectacular and scare even the shortest of shorts? Yes. Do I think JPM is a major factor in derailing a bounce? No. Do I think Europe is a major factor? I think ultimately it is the only factor.

While the market got pretty bet up in after hours, the Euro is still holding above the resistance trendline.