Is The Market Being Manipulated In An Attempt To Sway Public Confidence?
Quite a few times we have shown the low volatility pattern the S&P 500 has traced out since the the March low. That very tight pattern has contained itself for months now. In fact, it still has not broken although it is close. Honestly, I have never seen this type of market behavior. The closest analogy I can see is early summer of 2007 when the market developed a mind of its own. Obviously we have seen rallies of 30+% but not without some type of breakage of a very short term pattern. Even a decline of a handful of percent is normal in a rally of any sorts. To me this very low volatility clearly points to market manipulation. Whether that is the traditional Wall Street manipulation or the Federal Reserve or Treasury is buying stocks, I don't know. I don't believe there is a plunge protection team as cited by conspiracy theorists. There is a President's working group on financial markets but there is no conspiracy in that organization. It is simply one of many advisory committees to a President. Their policies may often be dubious but that is not conspiratorial.
That said, I do believe it is plausible in times of severe distress that the government could step into financial markets because they have. The Federal Reserve stepped in when LTCM imploded in 1998 and at times before and since. In fact, the Japanese government actually announced they were going to buy stocks some time ago. I would assume our government would announce any policy publicly but one never knows with politicians. Transparency in Washington has become a farce.
A most plausible reason is that Wall Street is trying to trade its way to balance sheet repair and the Fed has armed them with enough liquidity to distort the markets temporarily. In other words, a liquidity-driven rally as we have written. This is also the reason why oil is again rising even though we have oil gushing out of our ears. That's what we get when the Fed pumps the market with liquidity and there is no financial reform. Wall Street goes right back to what it was doing before. That is, stealing from society. And, that is really what has been happening. There is no reason for Goldman or Morgan Stanley or others to be trading in commodity markets. Pushing commodity prices higher only takes money out of the pockets of the citizens of this country and others around the world and puts it in the pockets of a very few distorting prices. As we have said repeatedly, rising commodity prices is not inflation. It is a distortion of financial markets.
Whatever the reason for the strange action in the S&P, this market has an air of levitation that goes beyond just a liquidity-driven rally to hand over fist buying day after day after day without pause. I would guess this is an attempt to incite emotions of being left behind and a conscious effort to draw buyers into the market. It's a timeless Wall Street trick. To distribute shares at much higher levels to unsuspecting buyers. Mostly you and me. Amazingly, I haven't received a single short signal intraday since this rally started until the last few days. The odds of that not happening in a market where millions of buyers and sellers meet is a near impossibility. That is, unless the market is being distorted or manipulated.
The general populace may be happy with a rising equity market and I'm sure that's the point. But they won't be happy with the long term consequences which involves an even greater long term mess. Instant gratification seldom has beneficial long term effects. Regardless, this is a market that is substantially too large to manipulate long term. Just like the general economy is. And, that means if such an effort is underway, it will fail and anyone who has piled back in will likely be decimated at some point thus taking even more wealth out of the economy. You might think about the applicability of this statement to the bond markets as well where we are also seeing substantially ridiculous price moves in many cases. Moves that are surely going to be punished.
Assuming the government is not buying securities and it is simply more Wall Street games, there is a limit to temporary liquidity available to push the markets. In other words, a substantial amount of short term price movements are driven by what one would classify as hot or transient money. Short term moves are likely limited by the amount of transient money available to deploy into the markets. So, without longer term buyers, the market will hit a wall at some point. Most likely when traders begin to take more money off the table than is flowing into the markets. Or the transient money supply has been exhausted. Then we see how many are actually selling or if we are simply waiting for more transient money to flow into the market for higher prices. In order for this to happen, the underlying economy needs to be creating more capital. That is not happening on a sustainable level but it may yet develop into some temporary sustainability yet this year with so much stimulus being deployed. In the short term, I remain concerned but would be very surprised were we to see substantial new stock market lows in 2009. But, when I see people historically predisposed to buffoonish behavior saying things like this, I realize the world is suffering from a bout of temporary insanity.
I remain leery of short term market behavior given the manipulative feel. So, I did a little investigation. I backed Wall Street bank stocks out of a very simple analysis of cumulative volume and laid it against the S&P so one could gain an appreciation for context. Below is what we see. Additionally in blue I have placed a best fits linear regression line against the volume analysis. Pretty much since a week after this rally started, volume has been waning and its trend is negative while pricing is substantially positive. Off of the March low, we now have only a net of two days of cumulative positive volume as of Wednesday. This after a two month rally. This leads me to believe someone is attempting to manipulate the banking stocks because when I add them back into the analysis, the story is substantially more constructive. In other words, short term money is flowing into large finance stocks but really nothing else. That wouldn't be hedge funds because they are generally getting taken to the wood shed by this rally. To me this means there is a high probability Wall Street is buying its own company stocks in an act of desperation or the government is buying financial stocks or some possible concerted effort between the two. That would also lend credence to the President's remarks right before the rally started that now may be a good time to buy stocks. What does he know? Seriously? Why would a President be so confident to make an off-handed remark about a topic he likely knows nothing about? Maybe because the government is levitating the market?
The below data point doesn't mean the market is going to crash. It's simply that the amount of buyers in the market has clearly not been reported accurately. Ultimately more buyers could step in and support prices in this general level or any number of other possibilities. But there is no denying unusual market activity. And after seeing preposterous behavior out of Washington, nothing would surprise me.
Party on Garth!
That said, I do believe it is plausible in times of severe distress that the government could step into financial markets because they have. The Federal Reserve stepped in when LTCM imploded in 1998 and at times before and since. In fact, the Japanese government actually announced they were going to buy stocks some time ago. I would assume our government would announce any policy publicly but one never knows with politicians. Transparency in Washington has become a farce.
A most plausible reason is that Wall Street is trying to trade its way to balance sheet repair and the Fed has armed them with enough liquidity to distort the markets temporarily. In other words, a liquidity-driven rally as we have written. This is also the reason why oil is again rising even though we have oil gushing out of our ears. That's what we get when the Fed pumps the market with liquidity and there is no financial reform. Wall Street goes right back to what it was doing before. That is, stealing from society. And, that is really what has been happening. There is no reason for Goldman or Morgan Stanley or others to be trading in commodity markets. Pushing commodity prices higher only takes money out of the pockets of the citizens of this country and others around the world and puts it in the pockets of a very few distorting prices. As we have said repeatedly, rising commodity prices is not inflation. It is a distortion of financial markets.
Whatever the reason for the strange action in the S&P, this market has an air of levitation that goes beyond just a liquidity-driven rally to hand over fist buying day after day after day without pause. I would guess this is an attempt to incite emotions of being left behind and a conscious effort to draw buyers into the market. It's a timeless Wall Street trick. To distribute shares at much higher levels to unsuspecting buyers. Mostly you and me. Amazingly, I haven't received a single short signal intraday since this rally started until the last few days. The odds of that not happening in a market where millions of buyers and sellers meet is a near impossibility. That is, unless the market is being distorted or manipulated.
The general populace may be happy with a rising equity market and I'm sure that's the point. But they won't be happy with the long term consequences which involves an even greater long term mess. Instant gratification seldom has beneficial long term effects. Regardless, this is a market that is substantially too large to manipulate long term. Just like the general economy is. And, that means if such an effort is underway, it will fail and anyone who has piled back in will likely be decimated at some point thus taking even more wealth out of the economy. You might think about the applicability of this statement to the bond markets as well where we are also seeing substantially ridiculous price moves in many cases. Moves that are surely going to be punished.
Assuming the government is not buying securities and it is simply more Wall Street games, there is a limit to temporary liquidity available to push the markets. In other words, a substantial amount of short term price movements are driven by what one would classify as hot or transient money. Short term moves are likely limited by the amount of transient money available to deploy into the markets. So, without longer term buyers, the market will hit a wall at some point. Most likely when traders begin to take more money off the table than is flowing into the markets. Or the transient money supply has been exhausted. Then we see how many are actually selling or if we are simply waiting for more transient money to flow into the market for higher prices. In order for this to happen, the underlying economy needs to be creating more capital. That is not happening on a sustainable level but it may yet develop into some temporary sustainability yet this year with so much stimulus being deployed. In the short term, I remain concerned but would be very surprised were we to see substantial new stock market lows in 2009. But, when I see people historically predisposed to buffoonish behavior saying things like this, I realize the world is suffering from a bout of temporary insanity.
I remain leery of short term market behavior given the manipulative feel. So, I did a little investigation. I backed Wall Street bank stocks out of a very simple analysis of cumulative volume and laid it against the S&P so one could gain an appreciation for context. Below is what we see. Additionally in blue I have placed a best fits linear regression line against the volume analysis. Pretty much since a week after this rally started, volume has been waning and its trend is negative while pricing is substantially positive. Off of the March low, we now have only a net of two days of cumulative positive volume as of Wednesday. This after a two month rally. This leads me to believe someone is attempting to manipulate the banking stocks because when I add them back into the analysis, the story is substantially more constructive. In other words, short term money is flowing into large finance stocks but really nothing else. That wouldn't be hedge funds because they are generally getting taken to the wood shed by this rally. To me this means there is a high probability Wall Street is buying its own company stocks in an act of desperation or the government is buying financial stocks or some possible concerted effort between the two. That would also lend credence to the President's remarks right before the rally started that now may be a good time to buy stocks. What does he know? Seriously? Why would a President be so confident to make an off-handed remark about a topic he likely knows nothing about? Maybe because the government is levitating the market?
The below data point doesn't mean the market is going to crash. It's simply that the amount of buyers in the market has clearly not been reported accurately. Ultimately more buyers could step in and support prices in this general level or any number of other possibilities. But there is no denying unusual market activity. And after seeing preposterous behavior out of Washington, nothing would surprise me.
Party on Garth!
<< Home