Another guess the gap day!

“The highlight of the night was China, which after halting half of its stocks, disallowing major stakeholders (5% holding or more) from selling shares for 6 months, and threatening to arrest short sellers, the Shanghai Composite managed to gain nearly 6% on the day. What might be most impressive is that the index was down over 3% in the first hour, before reversing off the lows for the largest 1 day gain since 2009.”

We didn’t write that and there are no typos. You can’t sell and if you short, we are going to arrest you. So of course the market would have a strong rebound rally. Let us be clear. It is normal to have wild swings when you get bubbles popped. The rallies occur just to suck the people in who have a sigh of relief. Some of the biggest rallies we have ever seen occurred in 2000 when the bubble initially popped.  The bottom line, we continue to be in a land where there is constant government and central bank interference in what are supposed to be free markets. We are not talking just Asia. Expect more wild swings. Expect more gaps to the upside and downside. Expect emotions to go from fear to greed and back again on a day to day basis.

We do not usually write to you on Thursday’s but we do write short notes every day that are published at garyk.com. We just wanted to write today to tell you our amazement that major indices here are not even down 10% with so many areas getting hit hard. This is because when markets and risk get in trouble, money flows into some of the biggest and most liquid names that have the most influence on the indices. It is only when there is no place left to go that the indices cave in also.

Another big gap to the upside today. We suggest this is because markets around the globe are waaaaaaay extended and oversold after cliff diving this week and were due to bounce. Leave no doubt there has been more deterioration but also leave no doubt, unlike the recent straight down dive in China, any drop here will tend to have several rallies to the upside just to drive people up a wall. It is also a pain in the rear when markets go from a huge drop into the close to a big gap up the next day and vice-a-versa. Enjoy!