Wednesday started with poor overall news. New Home Sales plummeted missing expectations (368K vs 387K expected & prior revised from 389K to 369K) which was quite a shock. Later the large hedge fund SAC received an SEC Wells Notice meaning charges would soon follow perhaps even implicating Steve Cohen. Rumors followed thereafter indicating there was selling in what might be SAC related positions to meet what was presumed to be their positions. Markets overall fell sharply including financials (XLF) and other sectors with selling widespread. This included a bear raid on gold (GLD) and other metals post options expiration which can often happen as those with big money can squeeze those holders of options now converted to futures contracts. But this selling implied a massive risk-off environment present.

To the rescue swooped in Boehner to suggest the fiscal cliff dialogue was moving forward and recent meetings were “constructive”. (Let’s remember Boehner likes trading stocks.) Obama followed shortly with brief comments stating he expected to have a deal done by Christmas. Algos jumped on this news and arrested selling almost instantly. You see they just look at headlines but don’t spend much time looking under the hood. It was a remarkable turnaround confirming who, what and how machines are dominating markets. And the day after Goldman Sachs CEO Lloyd Blankfein visited the White House Thursday Mitt Romney will be having lunch with Obama. He’ll be served crow no doubt.

Elsewhere the Fed Beige Book showed economic growth to be modest which seems to remain their primary description over the past 6 months. Markets yawned at the news.

Overseas, and probably faster than even the most cynical bear would imagine, German Finance Minister Schauble stated Greece will need more help. Wow, that was quick!  Germany’s most popular tabloid Bild published a scathing rebuke entitled “The Never Ending Story”. In it they state when referring to Greece: “The patient dies and the paramedic goes bust

Chinese stocks fell to 2009 lows as trading volume is drying in Shanghai. In a contrast the Philippines (EPHE) reported GDP growth at 7.1% vs 5.4% expected & prior 6%) as the country is on a great growth path.

In Europe most share indexes recovered from losses before the close in concert with the Boehner/Obama “happy talk”.

The dollar (UUP) was nearly unchanged after rallying sharply early in trading. Gold (GLD) as indicated was hit hard by selling which is well-described here. Commodities (DBC) were dragged lower by energy (USO) in a “risk off” pattern little noticed by the stock market clearly. Bonds (TLT) sharply higher early on a flight to quality based on early news reversed course with stock market rally.

Volume on this crazy reversal day was higher as shorts were squeezed once again. Breadth per the WSJ was positive.

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