Stockmarket February

[MetalMeister]

Holy Cow!!!  What a day.  I didn't check the market all day long except to see where it ended up.

I just checked and see it went to 9836 at one point then blast off.

I guess the PPT didn't want to end the week on a worse note?

Clues?

[Bottomfeeder]

Personally I don't really believe that there is an active plunge protection team.

The move was simply a bounce of long term downtrend line.  A simple technical really that many traders recogized.  The question is will it continue or will the downtrend resume.

My bias is that we just had a constructive correction down 9% from 1150 top to 1045 low.

I think we are pretty much around fair value between 980 and 1150, figuring from 1576 top in 2007.  Markets could become more overbought or oversold than the range listed, the question is just how one would deal with such extremes, again.

[sidewinder]

Well I gonna take a long position Sunday night.  LOL  With a close stop of course of course. 

[onlooker]

I was working in Hong Kong when the 1997 Asian Financial Crisis happened.   The Hong Kong dollar was under attack by currency speculators. 

In August 1998, the Hong Kong government responded by broadcasting that it was going to buy up and own shares in Hong Kong based companies.  A broad range of over fifty (to my best recollection) companies’ shares were brought – cement companies, banks, major retailed stores, manufacturing companies, transport companies, real estate companies, pharmaceutical companies, electrical power companies, telecommunication companies.  It became the largest shareholder of some of those companies.  Hong Kong financial and main street companies both got funded.     

In short, the Hong Kong Government openly broadcasted that it had in place a newly created Plunge Protection-like Team (I am going to dub it the Hong Kong Plunge Protection Team (HKPPT)) to combat the currency speculators. 

Consequently, the Hong Kong people were not afraid to invest in any sector of the markets because the markets were stabilized with the support of the HKPPT.  By 1999 the Government grouped those shares into a fund called the Tracker Fund of Hong Kong.  The fund was launched, the speculators were beaten back and a profit was made. 

The Tracker Fund has grown and is still operational.

See: 

And then came Hong Kong. Back in August, when the city-state's authorities began massive purchases to support share prices, many outsiders condemned it as an outrageous violation of free-market principles. But financial officials in Hong Kong claimed that they were fighting a deliberate conspiracy against the city's economy. As Finance Secretary Donald Tsang puts it in a widely circulated letter, "Regular patterns [of currency sales] suggested a co-ordinated manipulative play involving very large funds" (rumored to include Soros' Quantum Fund and Julian Robertson's Tiger Fund, among others) "accompanied by shorting of stocks and futures ... [t]hese plays were designed to create panic conditions for the shorting positions to be profitable. If left unchecked, such manipulative ploys would have resulted in panic selling in the stock market ..." In short, they were dealing with a cabal of speculators.

http://web.mit.edu/krugman/www/mabuse.html
See: 

The HKMA and Donald Tsang, then the Financial Secretary, declared war on speculators. The Government ended up buying approximately HK$120 billion (US$15 billion) worth of shares in various companies,[24] and became the largest shareholder of some of those companies (e.g. the government owned 10% of HSBC) at the end of August, when hostilities ended with the closing of the August Hang Seng Index futures contract. In 1999, the Government started selling those shares by launching the Tracker Fund of Hong Kong, making a profit of about HK$30 billion (US$4 billion).

http://en.wikipedia.org/wiki/1997_Asian_Financial_Crisis

See:  http://en.wikipedia.org/wiki/Tracker_Fund_of_Hong_Kong

My point with mentioning the HKPPT?

What I want to show that government intervention into the markets is nothing new.  It has been done elsewhere in the past.

For decades, Superpower, the USA has the funding (the world’s reserve currency), political clout (epicentre Washington) and creative genius (former aerospace scientists, quant magicians) to produce all type of original financial instruments – such as derivatives (financial weapons of mass destruction as dubbed by Warren Buffet).  If America is the king of producing financial instruments, then it reasonable to conclude that long ago, it had created a PPT.   

The Hong Kong Government broadcasted the existence of its PPT.  In America, its PPT is a big secret.  As a result, America’s PPT has obtained a conspiracy theory spin to it. 

I would agree that exactly who is running America’s PPT is up for speculation; but for me, the existence of a PPT is very real.

~    ~    ~    ~    ~    ~    ~ 

Veteran day trader, Sidewinder was not the only one to spot PPT’s involvement in the markets.  There were those also spotted by veteran reporter Ed Steer.

See:  Ed Steer's Gold & Silver Daily - February 06, 2010

The U.S. dollar had an interesting day... doing nothing worth mentioning until around 9:00 a.m. in New York when the dollar rose and the precious metals fell. But the interesting thing was this... gold and silver began to rise from their 11:50 a.m. lows long before the dollar topped out at precisely 2 p.m... and really started to accelerate to the upside as the dollar declined. Not only that... the Dow began a miraculous PPT-assisted recovery starting at precisely 2:00 p.m. as well. Coincidence??? Not bloody likely!

~    ~    ~    ~    ~


While I'm on the subject of 2:00 p.m... that's the time that the HUI took off... and it closed on its high of the day as well. Until that point, the HUI was sitting right on the unchanged mark. Up 5.28% in two hours is quite spectacular... almost making up for Thursday's debacle.

http://www.caseyresearch.com/displayGsd.php

I treat Sidewinder’s and Ed Steer’s PPT sightings as valuable market trading information / clues.  The Powers That Be would like newbie investors like me along with seasoned veterans like Charles Biderman, CEO of TrimTabs Investment Research to treat PPT sightings like Elvis Sightings.    There is no damn way am that I and others are going to do that!

~   ~   ~   ~ 

SW:

Whenever you have the time, please present other charts when you sight a PPT market footprint which you feel is important to note.  I would find it educational and helpful for making future trades.  Thanks.   

[pinetree]

I know I'm the anti-conspiracy guy here lol but I don't see this is anything to get too worked up about.

Here is a link from Brett Steenbargers site: http://traderfeed.blogspot.com/2010/02/look-at-intraday-putcall-ratio-for.html

The median equity put/call ratio for options listed on the CBOE has been about .60 over the last several months (See this post for a perspective). Friday's volatile market finished with a high reading of .79, indicating significant bearish interest. This tends to be a contrary indicator.

But when we look *within* the day, we see even more interesting patterns of sentiment. Note how the put/call ratio for each half-hour during the day soared to over 1.0 when the market made its lows and then quickly moved back toward median levels on the ferocious rally in the afternoon.

In the chart below I've circled each time the put/call ratio was higher than .75 - and each time marked a low point in the market.  This is only a short term indicator and like McClellan lows is not a guarantee of anything and it does not mean the market will go on to new highs as it did the previous three occasions.  But it does suggest we are due for a short term bounce.



This shows how the market is rigged against human nature.  When the short-term bearishness reaches a peak (put buying outpaces calls by such a large amount) you have the proverbial situation where there is no one left to sell/short and the only thing the market can do is go up.  The following link is a good example even if it is a little outdated (2006).

http://traderfeed.blogspot.com/2006/05/market-is-rigged-against-human-nature.html

Suppose you had two traders. One--a momentum trader--became optimistic and bought the S&P 500 Index (SPY) every time it rose in price for the day; the other--a contrarian--became optimistic and bought the S&P 500 Index (SPY) every time it declined in price for the day. Each trader held positions three days. What would be their return?

Since January, 1996 (N = 2584 trading days), the momentum trader would have an average return per trade of .01% (725 up, 617 down). The contrarian's average return would be .20% (679 up, 563 down). The trader who bought at the end of *every* day and held three days would have had a return of .10%.

In other words, simply by buying after a down day, the contrarian would have doubled the average return in the market.

By buying after an up day, the momentum trader severely underperformed the market.

Now you know why overconfidence in trading is the greatest pitfall of all. The market is rigged against human nature: getting excited after a rise and discouraged after a decline ensures that traders are on the wrong side of markets.

[onlooker]

Pinetree:
 
I know you are one of the most prudent investor here because you are wise enough to first test out your trading theories with imaginary money prior to using real money.  Very smart move.  You like to make sound conclusions, judgements based on straight forward facts, and not on conspiracy stories.  To me, that is a very sound way of thinking and investing.

And I have been using more conspiracyish words like Government Sachs, banksters, Masters of the Universe, “Anglo” financial oligarchy; presenting more non-mainstream commentators like Jim Willie, Catherine Austin Fitts, former economic hitman John Perkins; advocating Sidewinder’s original allegorical story on the feeding habits of humpbacks / the real workings of the markets as compulsory viewing for day traders (see Technical Analysis Page, January 31, 2010, 8:38:11 AM).

As a result, I suspect that I am now seen here as the guy who lost his mind, a nutter.  lol.   

So, I am going to pull back a bit, and present more conventional, cut and dry commentators, articles, whatever.  I now present the following articles and just consider whether they are correct or not in saying that there is government interference in the U.S. stock market.

John P. Embry is a respected Canadian businessman.  Because he lives outside of the USA, he can write whatever he likes about the USA with no fear of getting a wakeup call from Uncle Sam.  He reports the following:

See:  http://www.sprott.com/Docs/SpecialReports/08_2005_TheVisibleHand.pdf

See: 

The new report is titled "Move Over, Adam Smith: The Visible Hand of
Uncle Sam," and has been published by Sprott Asset Management of
Toronto. It was written by the firm's president, John P. Embry, and his
assistant, Andrew Hepburn, and concludes that the U.S. government has
intervened to support the stock market so many times that "what
apparently started as a stopgap measure may have morphed into a serious
moral hazard situation, with market manipulation an endemic feature of
the U.S. stock market."

http://newsgroups.derkeiler.com/Archive/Misc/misc.invest.stocks/2005-09/msg00903.html

I note that currently, it appears that USA government intervention into the markets is so obvious, that it is now mentioned in mainstream media.  For example, reporter David Reilly writes that perhaps the idea of a secret banking cabal controlling the USA and global economy is not so crazy.  I wonder how he got his article passed by his editor’s desk?

See:  Secret Banking Cabal Emerges From AIG Shadows.
Commentary by David Reilly

Jan. 29 (Bloomberg) -- The idea of secret banking cabals that control the country and global economy are a given among conspiracy theorists who stockpile ammo, bottled water and peanut butter. After this week’s congressional hearing into the bailout of American International Group Inc., you have to wonder if those folks are crazy after all.

Wednesday’s hearing described a secretive group deploying billions of dollars to favored banks, operating with little oversight by the public or elected officials.
We’re talking about the Federal Reserve Bank of New York, whose role as the most influential part of the federal-reserve system -- apart from the matter of AIG’s bailout -- deserves further congressional scrutiny.

http://www.bloomberg.com/apps/news?pid=20601039&sid=aaIuE.W8RAuU

Anyways, I do like your conventional and logical response as to why the markets acted the way it did last Friday afternoon.  It is educational and worth looking at.   

[pinetree]

Hi Onlooker.  No, I definitely don't view you as a nutter LOL   You seem open-minded and willing to look at things from many different angles, a necessity if one hopes to find the truth.

I guess when it comes to the conspiracy stuff I have no way to know whether it's true or not, so I decide to ignore most of it.

My observation is that most cries of manipulation come from people who disagree with the market's action.  The people complaining about the PPT are usually bearish market commentators or traders who have been biased to the short side.  Back when the market was falling I would hear accusations of rigged markets by the bulls.... blaming the decline on short selling and the corrupt SEC, the market is rigged, etc,etc.  Now that the market has been rising it's the other side's turn to cry foul.  The same thing happened with the oil market.  When it was rising I would read complaints of how the insiders were driving it up to help their buddies in the oil business, the market is rigged, etc,etc.... while the commodity bulls were happy as could be.  When the market turned then it was the opposite situation.  I remember reading an article by someone at Sprott saying the 08 commodity selloff was the greatest govt intervention in markets ever.  I think Sprott is focused primarily on commodities so it shouldn't be a surprise to see them complaining about a sharp decline in commodity prices.

I'm not taking sides in the issue.  I don't know whether the market is rigged or not.  I remember Obama's comment back in March 09 suggesting that now might be a good time to buy stocks (and everyone in the media laughing at him) and that was one or two days before the bottom.  Maybe he knew something, maybe it was lucky timing, I don't know.  But as I see it we had a high put/call ratio (at a level has marked recent market lows) and we were sitting right above a long-term support line for this bull leg, so probably a good time to be be prepared for a bounce.  Just trying to present some info that was actionable in real-time and could have kept a guy out of trouble.  I had purchased SDS in my IRA earlier in the week and I exited the position on the way down around SPX 1048.  I didn't expect a bounce like that - but was prepared for the situation.

Whether or not the market is rigged I don't know, but I can tell you that rigged or not you are still swimming with sharks if you try to trade it short term, so trying things out with imaginary money definitely makes sense.  SW's humpback whale story is a good example of how dangerous a game this is.  I've read that the greatest challenge for new traders is surviving their learning curve without depleting their account in the process.  I have yet to place a live trade with futures - I'd rather make my mistakes with fake money than give my real money away to the seabirds and humpbacks of Wall St.

[Bottomfeeder]

Good answer PT, you were pretty much reading my mind on the bears/bulls explaining the "only possible reason they could be wrong".

Bottom line, losing your money is expensive, and excuses as to why are of little consolation.

The government is definately intervening in the markets and is pretty obvious and actually transparent in how they have done it, with their purchases of MBS, and targeting interest rates at zero, and so on.

One has to accept complete responsibility in this business and in my mind citing the PPT to explain market action, is the complete antithesis of that.  WHY something goes up or down is not as important as the action itself, if you are on the wrong side you will lose.

No reason to get distracted by things you cannot control, just creates excuses and paralysis.

My two cents

[Uboat]

Good arguments and links from OL, PT, BF on the PPT.
By accepting its existence we can position ourselves in the market accordingly.

It might mean that the market cannot collapse, as severe down movements will be corrected upwards, so that JDH’s long awaited correction might only be gradual and gently.

Since political decisions affect most aspects of trading, the current upward move of the dollar appears directed by the need to keep and attract foreign money to fund the US debt.
Not coincidental with the rise of the dollar is the timing of the revelation of the debt problems of Greece, Spain and Portugal, which not only lower the value of the Euro but also assists European exports.

It cannot be in the interest of any major industrial country to see the price of commodities and gold go through the roof, therefore the current correction should not be surprising.

In hindsight, with the exception of day and swing trading, anyone sensible to politics could have taken Obama’s recommendation in March by loading up the truck with stocks.     

[onlooker]

PT:

I guess when it comes to the conspiracy stuff I have no way to know whether it's true or not, so I decide to ignore most of it.

You are right that market trades should not made based on a conspiracy story, because the trader will very likely end up looking like a jackass. 

Here is a good reminder.  See:  http://www.youtube.com/watch?v=P84OKTUx6LY

[onlooker]

BF:

One has to accept complete responsibility in this business and in my mind citing the PPT to explain market action, is the complete antithesis of that.  WHY something goes up or down is not as important as the action itself, if you are on the wrong side you will lose.

No reason to get distracted by things you cannot control, just creates excuses and paralysis.

Take complete responsibility for one’s own trade - very sound advice.  And I add, I still have much to learn.   

[onlooker]

Uboat:

It might mean that the market cannot collapse, as severe down movements will be corrected upwards, so that JDH’s long awaited correction might only be gradual and gently.

I agree.  I think things are going to be slow and steady, not crash and burn.  Despite all the protests, the complaints, and against all odds talk; at the end of the day, the G20 countries will put out all the stops together to prevent a collapsed DOW, USD.  So, there will be no monstrous spiking of commodities and gold (except for bonuses  ).   

There is also JohnB’s 2010 predictions commenting on the effects of the upcoming US election to consider.

In order to maintain democratic majorities in both houses come November 2010,  the stock market must be manipulated to do well; the money supply must be inflated; government expenditures must increase; the unemployment rate must be reduced;  interest rates must be kept artificially low as it is now;  etc

Only a black swan event would change everything - I think.
~   ~   ~  ~  ~  ~

In hindsight, with the exception of day and swing trading, anyone sensible to politics could have taken Obama’s recommendation in March by loading up the truck with stocks.     

In March 2009, Obama calmly broadcasted a recommendation to buy up US stocks for the long term; now in 2010, the losers are the ones who did not pick up on his recommendation.  A lot of money was left on the table in 2009.

See:  http://www.youtube.com/watch?v=pVfhTPLkOj0

Obama makes an excellent poker player.  Read him and weep in 2010.

[MetalMeister]

I don't think Market rigging and manipulation qualifies as a conspiracy.

Those two are just outright criminal, deceit, and fraud.  Those things are to be expected in the Markets...

Now, the Willie thing you posted the other day that is definitely conspiracy stuff when you write something you can't document.  Just my thoughts.

I thought I was the nutter that PT was pointing out?   

I'll share the credit with ya, OL!

And I have been using more conspiracyish words like Government Sachs, banksters, Masters of the Universe, “Anglo” financial oligarchy; presenting more non-mainstream commentators like Jim Willie, Catherine Austin Fitts, former economic hitman John Perkins; advocating Sidewinder’s original allegorical story on the feeding habits of humpbacks / the real workings of the markets as compulsory viewing for day traders (see Technical Analysis Page, January 31, 2010, 8:38:11 AM).

As a result, I suspect that I am now seen here as the guy who lost his mind, a nutter.  lol.   

Hi Onlooker.  No, I definitely don't view you as a nutter LOL   You seem open-minded and willing to look at things from many different angles, a necessity if one hopes to find the truth.

I guess when it comes to the conspiracy stuff I have no way to know whether it's true or not, so I decide to ignore most of it.
 

[MetalMeister]

Well said.

And that is exactly why silver is the number one shorted commodity of all time...  It's unique

Here is Ted Butler in 2006:

What is the real silver story and what would it take to proclaim that most observers and commentators knew that story? In my opinion, you would have to see articles and hear commentary from the popular media that dealt in the following topics. That silver had been in a continuous consumption/production deficit for 60 years. That the US government, formerly the largest holder of silver in history, had none left. That silver had become a vital industrial commodity with more applications and uses than any other commodity, save petroleum. That the price had not risen for 20 years in spite of the structural deficit, in defiance of the very law of supply and demand. That, according to the US Geological Survey, there were fewer years of production of silver left in the ground than any other metal or mineral. That, in terms of available world inventories, silver was more rare than gold.

It cannot be in the interest of any major industrial country to see the price of commodities and gold go through the roof, therefore the current correction should not be surprising.

In hindsight, with the exception of day and swing trading, anyone sensible to politics could have taken Obama’s recommendation in March by loading up the truck with stocks.     

[MetalMeister]

A friend of mine is a Republican State Senator in the Illinois General Assembly.

Dave told a group of us that he used to play poker with then Illinois State Senator Obama.

He told us this in September 2008 and then reiterated several times that "you do not want this man as your President".

It was very clear that Obama was quite the liar, or in poker terms the bluffer...

I just say snake oil saleman.

Obama makes an excellent poker player.  Read him and weep in 2010.