Saturday, February 6, 2010

Program Trading Manipulation

Friday's action was straight out of the pages of 2007 and 2008.  During an oversold market, when the past week included several down days, a buy program comes out of the darkness, when it looks bleakest, nails the shorts and pumps up the ES several points in a few minutes.  The buying continues into the close and we close near the highs of the day.  It looked like a hockey stick save for the bulls.  The sad part is that these hockey stick saves only bought time and didn't induce a new wave of serious buying. 

In less mature and smaller stock markets, for example Hong Kong or Korea, this kind of program trading manipulation happens all the time, especially when the market is very overbought or oversold.  Usually in the opposite direction of the short term trend and in the 2nd half of the trading day.  Why put in a program trading buy and force the market higher instead of trying to buy at the best price possible?  Its because these program traders think they can macho the market higher with their purchases.  You can manipulate the market for half a day and get the crowd to do as you please, but in the long term, the market will go to the level that it wants to.  No one is bigger than the market.  Except the PPT.  (That is a whole another topic)

Right now, throw in all the reasons that you want, but the intermediate trend is down and the market wants to go lower.  A strong market ignores these reasons (see Dubai, Thanksgiving weekend), a weak market doesn't (see Soc Gen MLK weekend, January 2008 and Bear Stearns, March 2008). 

Greece, Portugal, and Spain are the reasons cited for the selling, and those trying to rationalize it by saying that's irrelevant to S&P 500 earnings don't get it.  The market got too high, and it was vulnerable to these bits of bad news.  Greece, Portugal, and Spain could all go into a Great Depression and it wouldn't mean much for S&P 500 earnings.  The contagion effect is feared, people say.  I say that you have to look at the big picture.  The market got too expensive, and complacent, and when sellers got a bit more aggressive, the buyers just weren't there.  The value buyers are not going to support this market until we get under 1000.  It only looks like a good time to buy because all the past dips just exploded higher.  But most of those past dips were from lower levels.  The absolute level of price is still too high compared to the fundamentals. 

6 comments:

Petsamo said...

Thanks Owl, I'll be on the lookout for any selloff.

Anonymous said...

Just cover man. There's no economic news on Monday, the G-7 said today they were going to restory financial stability (IE PIGS bailout), and a handful of decent sized companies are likely to going to report good earnings.

Anonymous said...

Whose down with PPT?

Petsamo said...

For those of you who don't know, Bob Brinker is a nationally syndicated financial talkradio host and he mentioned Greece, Portugal, etc in his radio show. So, the general population is now aprised of the situation. There's a very real possibility of continued selloff on Monday.

Anonymous said...

Fantastic more buying opportunity.

Gdp expanding
unemployment going down.

It's all working. yahoo

nicasurfer said...

Owl, i respect reading your views on the market. Thank you for the hard work.

Hopefully we gap up so i can sell my gold and oil. Then i will buy more dollars, bonds, and vix.

See you at dow 7000