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.