In today’s edition of Trader Art, I present the weekly chart of Google (GOOG).


As Google reaches a key level, smart money takes $30 million off the table.

Google

The machines jammed the e-mini futures contract above yesterday’s highs in the evening session last night. The rally soon fizzled when at around 8:30 AM EST this morning the socialized Manhattan bankers arrived at their proprietary (prop) desk trading turrets—the only sources of profits left in what was once known as investment banking.

When prop trading accounts for the bulk (if not the entirety) of ones revenues, how can the corporate charter retain the title Investment Bank? Perhaps it is time to revise such charters to reflect what they really are—socialized hedge funds. Unfortunately, prop trading models work brilliantly, until they don’t. Now that prop trading is broken, the already collectivist banks will become systemically more socialized thanks to the secondaries being sold to the public via the shilling on CNBC.

Case in Point: As I write, Morgan Stanley (MS) is out with a $2 billion dollar secondary offering announcement. Not to be outdone by the competition, Wells Fargo (WFC) had already announced a $6 billion dollar secondary. Scary. But not quite as ominous as the $6 billion Dow Chemical (DOW) debt offering.

But I digress.

Once US investment bank prop traders arrived at their desks, S&P futures sold off all day until the magical last half hour of equities trading. Then the machines (naturally) seized their opportunity to force up the futures a quick 12 points in about 30 minutes. The S&P and the Euro moved in tandem as the chart below illustrates. The Euro did not fluctuate as strongly as the S&P. The e-mini contract is where the wildest action was, as prop desks still live under the delusion that their quantitative models exploit some sort of edge.

S&P 500 (top) Euro (bottom)

The 1PM EST bond auction results sent the bond reeling and out of the range previously mentioned here at Trade the Picture.

Being long Treasury Note calls is my current “outlier” postulation of the year. This trade will work because a) mortgage rates need to stay low and they cannot if Treasuries don’t rally, and b) Treasuries move in tandem with the Volatility Index ($VIX). Restating my restatement: the Fed will squeeze the bond higher to maintain low interest (mortgage) rates, or else market volatility will return and a flight to safety will push the bond higher. Either way, it looks like a win-win for Mr. Volatility.

Other items of note:

The “Upgrade of the Day” award goes to none other than Morgan Stanley (MS) for promoting Bank of America (BAC) and awarding it a $25 price target. Look for some reciprocity in the days to come. Very likely, (BAC) will soon be handing out the promotions—promotions Morgan urgently needs given the fact they have $2 billion of equity to sell to the public.

When news of the (MS) secondary hit the wire I reached for my Bloomberg terminal to see which earthly investment bank would underwrite such an offering. The headline read to the effect of “Morgan Stanley & Co. Incorporated will serve as the sole book-runner for the offering.” Given they are representing themselves, there obviously won’t be a conflict of interest.

Speaking more to the point of secondaries, I’d like to grant a (dis)honorable mention to Jim Cramer who advised viewers that—since he’d potentially like to invest his personal charitable trust into the the ubiquitous secondaries flying all over Wall Street—they too should put their hard earned dollars into such deals. By talking his own book that doesn’t even exist due to trading restrictions, Jim sure has reserved himself a seat in the Wall Street shill hall of fame.

The quote of the day goes to Rick Santelli (see video below) who actually drew a chart on live TV today to explain where current economic policy will lead:

“We are using future revenues to fix the hole today, so we’re going to be carrying a trailer load up a hill for the next several years.”

Rick remains one of the few people on television to whom it is worthwhile listening.

Peace

Elliott Management Sees Economic Disaster Brewing (New York Times)

“In its latest letter to investors, Elliott Management, a hedge fund run by Paul Singer that specializes in distressed investments, warns that the current wave of government bailouts and stimulus spending will not work and could ultimately make the economic situation worse.”

Note: You have to read this stuff in the papers. Comments like these are not broadcast on television.

Goodbye David Rosenberg (Zero Hedge)

“Never be a slave to the data – they are no substitute for astute observation of the big picture.”

We Gravitate Toward Our Self-Talk (Trader Feed)

“In all these ways, how we think affects how we feel and how we act. Our self-talk constructs our personal reality and helps define the behavioral options open to us.”

Peace

ADP job figures hit the tape at 5:15 EST this morning; within one minute the machines had bid up the e-mini futures contract 10 points. With its surplus time, the market then consolidated most of the day around the prevailing highs.

Meredith Whitney—the recipient of death threats for calling the banks out on their shenanigans long before the mainstream press deigned to comment—spoke out today warning of the bubble in credit card debt that is soon to burst. She was quickly disregarded, as Capital One Financial was bolstered by the stress test results and an upgrade. After the bell, $COF traded even higher based on reports from the Wall Street Journal that they “do not need to bolster their capital.”

Things of note:

The NASDAQ was a clear underperformer today. While the Dow and S$P futures closed above yesterday’s highs, Nasdaq futures fell short.

Despite the strength in the tape, the Philadelphia Housing Sector Index $HGX closed off just over 2 1/4%.

In spite of the weak dollar USD, the Treasury Note ZN_F held firm. It remains in the range I discussed in yesterday’s post.

10 Year Treasury Note

As the rally in equities stretches higher, an important inflection point is reached.

SPX Futures Weekly