Monday, February 8, 2010

Art of Manipulation

There are certain patterns in the stock market that the majority of traders view as bullish. The V shaped rebound pattern is widely viewed as being bullish by the majority. This is despite the fact that the market closed pretty much where it opened, and around the levels of the previous day's weak close. It's funny that a flat day of trading between 1055-1060 and closing at 1060 would have been viewed as less bullish than a big dip down to 1040 and a close up to 1060. Even though the first case would have a higher daily VWAP than the second case.

Let's look at the motivation of the manipulator. The manipulator is already long and in a losing position. He can either take his loss or double down and hope the market bounces back. Or he can quadriple down and force the market up. They are not in a good position. So they dig in their heels, get bold, and run a buy program and raise the price as high as possible, and maintain the buying, until the crowd takes over. The crowd buys in to the rally near the close, as they view the strong buying as an all clear sign, and pay up because the action looks good. At that point, the manipulator can dump as much size as they bought plus the previous inventory that they were already holding. They sell at prices that are higher than they would get had they not manipulated and just sold their inventory. What happens is they turn a big loss into a small loss by manipulating the price higher, while clearing out all their inventory at the same time.

Why the afternoon to manipulate? Two reasons. 1. The market is thinnest in the early afternoon than at any other time during the day. Thin markets require less money and are easier to manipulate. 2. There is less time necessary to keep up the manipulation charade, so less inventory to add while massaging prices higher. By 3:30, the crowd will have already taken over the job, and will be scrambling to either cover shorts or to buy after "the bottom".

I remain bearish, but think we could oscillate a bit higher from current levels. I have closed out a part of my short position and will add it back on if we can revisit 1067-1068 zone which I view as stiff resistance.

7 comments:

Anonymous said...

Sold ATHX @ 2.89

Anonymous said...

ol dawg

Anonymous said...

LONG JTX @ 2.33

OL DAWG

Anonymous said...

We rally this week and selloff next.

Market Owl said...

I don't think this market is ready to rally for 1 week. I think today is it. We go lower starting tomorrow IMO.

Anonymous said...

Market Owl, what's your call for today's finish ?
Thank you

Market Owl said...

I expect a selloff at the close to take us to 1050s