Wednesday, 8/14 Market Wrapup (Did you see that? What was it? A bird? A plane? A PPT?)

FinancialSense.com ^ | 08/14/2002 | by Scott Middleton

[Lazamataz]

 
Weekday Commentary from Scott Middleton
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Did you see that? What was it?
A bird? A plane? A PPT?

Nyquist Column Treachery in Mesopotamia		Jim Puplava on location Updated 8/13
Letter to The Editor, WSJ by Ned Schmidt Spin City Smoke & Mirrors by James E. Sinclair

Wednesday Market Scoreboard  August 14, 2002
Dow Industrials		260.92	8743.31
Dow Utilities		7.06	242.42
Dow Transports		41.89	2306.12
S & P 500		35.41	919.62
Nasdaq		65.02	1334.30
US Dollar to Yen			117.27
US Dollar to Euro

.9783  

 Gold

2.40

313.50  

 Silver

.12

4.458  

 Oil

.25

28.15  

 CRB Index

.44

215.89  

 Natural Gas

.07

2.91  

08/13

08/12

Change

  HUI (Amex Gold Bugs Index)

Close
YTD

116.85

119.05

2.20

52week High

147.82

06/03/02

52week Low

59.86

11/26/01

  XAU (Philadelphia Gold & Silver)

Close
YTD

64.63

65.79

1.16

52week High

88.65

05/28/02

52week Low

49.23

11/19/01

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Energy Resource Page
Precious Metals

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 Market WrapUp for the Week 
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^{Wednesday, August 14, 2002 Market WrapUp}

Intervention Creates Optimism
We all know that as long as we can keep the markets positive, the consumer will remain confident. And if the consumer remains confident, he or she will continue to keep this economy afloat. At least, it has thus far. It’s no secret from my writing that I give credence to the existence of a Plunge Protection Team (PPT). With that in mind, the primary goal of the PPT is to continue to create optimism in the minds of the consumer and optimism that the economy, i.e. the markets, are on the road to recovery.

What amazes me these days is that the activities of the PPT have become much more blatant in recent weeks. This is especially true today. If you look at today’s intraday chart of the Dow, I’d say that around 13:30pm EDT and straight through to the end of the day was a classic instance of intervention.

Leading to today’s actions started yesterday after the market learned that the Fed chose not to cut rates. As a result, the market took a nosedive in the last two hours of trading when the expectations of a rate cut did not materialize. Then Dubbya speaks last night about how the economy is not as bad as it seems and all the bad seeds would be hauled off to jail. The market opens this morning, as one would expect, down. However, as the day wore on and more CEO’s and CFO’s submitted their sworn affidavits to financial statements and the spin of the Fed meeting made its way across the media outlets the market started its move. All this news was portrayed as a positive and that now was the right time to buy, according to the media services. Did anyone really buy into it? Probably a few, maybe even some short sellers, but not enough to create the meteoric rise we saw today.

The reality of it all is that corporate profits are still weak, people are still getting laid off, and the threat of war still exists on a very high level. With all that, who in their right mind would be buying this market? One thing for sure, its not the mutual funds, as their reserves are being used to cover the record amounts of redemptions they are receiving each day.

Financial Markets
The Standard & Poor's 500 Index advanced 35.42, or 4 percent, to 919.63, led by Wal-Mart Stores Inc. and Microsoft Corp. The Dow Jones Industrial Average surged 260.92, or 3.1 percent, to 8743.31. The Nasdaq Composite Index climbed 65.02, or 5.1 percent, to 1334.30. All three market gauges recorded their biggest gains since July 29. Two stocks rose for every one that fell on the New York Stock Exchange and the Nasdaq Stock Market. Some 1.51 billion shares traded on the Big Board, 4.5 percent below the three-month daily average.

Treasury Markets
The yield on the 10-year Treasury rose to 4.10 percent after sliding as low as 3.96 percent

© Copyright Scott Middleton, August 14, 2002

[Lazamataz]

No PPT, Scott is wrong. It was post-certification high. It is the pop some of us predicted. We will get about 1-3 days of elation, then back the The Bear.

[Lazamataz]

Market Wrapup is delivered...

[The Vast Right Wing]

The Bear is dead. Welcome to the Bull.

[Plunge Protection Team]

Oh, come on, Laz. Think positive thoughts. ; )

[headsonpikes]

"Welcome to the bull."

I certainly won't be taking any cheap shots at THAT fish-in-a-barrel. ;^)

[Billy_bob_bob]

I disagree. IMHO this is nothing more or less than a bear trap. There are a lot of amateur players out there who have decided that they want to buy puts on stocks. The old time hands see these markers on the table and the dollar signs light up in their greedy little eyes. They know that these kiddies don't have the cajones to ride out a tough short squeeze, and that they'll cover at the top of the market.

When the Dow breaks 9,000 later this week or early next week, the newbie shorties are gonna find their tender bits in a blender, and they're going to stampede to cover. The Dow pops to about 9,200 for about half a day, then the bear comes back into town. That's when the big boys move their markers to the other side of the table, and the small time bulls, lured out of their money market accounts by the rally, get led to the slaughterhouse.

Of course, this is all IMHO, yadda yadda yadda. Your mileage may vary.

[TruthWillWin]

A real dead bear bounce?

[RightWhale]

Yes, it is not PPT. There will be elation followed by solemnity, but amid fluctuation is a rising tide. Probably good through December, but watch for October, especially a Friday in October.

[The Vast Right Wing]

The low for the bear was July 24th (I think), time will tell

[Moonman62]

There wasn't any particularly good news today. President Bush continues to base his economic growth plan on creating $13 billion worth of new exports for already subsidized farmers. To put the importance of that $13 billion in perspective, we have a $10 trillion economy.

[Unknown Freeper]

bump

[imawit]

Yeah, that's right. BUY LOW SELL HIGH. I can move with the flow. I also see whose fist is on the faucet. There was no solid truth good news that caught my ear in the last 48 to 248 hours. It's not a time to get in and hold.

[Lazamataz]

The Bear is dead. Welcome to the Bull.

I will bet my 401k you are wrong.

Actually.... I *am* betting my 401k.

[Ernest_at_the_Beach]

We need Businesses to start investing again!

That is gonna take a while yet!


So be cautious!

[Gritty]

Coincidental to the meteoric rise in the Markets, the US$ Index jumped at the same time - at approximately 1330.

Does anybody have any info on September S&P Call volumes for the same time period? I note from the charts there was a spike just prior to that time also.

PPT intervention or merely accident? You decide!

[dtel]

Being a financial neophyte, is there any reason the second chart would drive the rest of the market?
It started up about 12:45 and the rest picked up at 1:30.

[The Vast Right Wing]

Well, If you are really betting on it, put your money into bonds or commodities, I'll put mine into stocks. We'll see who does better over 1, 5, 10, 25 years. I bet I'll win in at least 3 of 4 categories.

[palmer]

You're telling me. There's something seriously freaky about a chart that zooms up an hour before a market rally. I will bookmark it in the "spooky" category.

[Gritty]

Apparently many of the short traders closely watch the Index futures for trends, especially sharp upward changes. If they detect one in the futures markets, they apparently buy stocks quickly to cover their short stock positions and protect their profits. That's one way the Markets can rise quickly - because there is a large increase in buying from the short sellers. More buyers than sellers means a rising Market.

Reputedly, the PPT has at crucial times bought heavily into these futures markets (particularly the S&P, as it is a very broadband indicator and closely watched) and pumped it up sharply. Short traders are very nervous traders and quickly react by buying stocks they are short to retain their profits, and the overall Market skyrockets if enough of them do it. Of course, this usually only has a short-term effect, perhaps for an hour or two but the momentum of the Market can carry it longer if a buying frenzy develops with other traders. Naturally, it takes quite a bit of money to rapidly move the futures market by buying rapidly enough to spike them upward. This is not something Joe Six-Pack can do!

Coincidentally, today I was watching the December Gold futures when they were pumped downward in such a way and the price of gold broke hugely from way "up" to way "down". At precisely 1115, a large number of small sells were placed rapidly on the Bid. For a few minutes, a rising number of sells were placed on the Bid, obviously somebody selling quickly at market and cleaning out the backlog of Bids. As they disappeared, the Bids were taken out lower and lower and finally crumbled to spike downward and probably knocked out a bunch of stops when there was no more buying pressure. All the while, the Ask price remained at the same level and there were no higher sales at the Asking price. There was none of the usual "back and forth" buying and selling. The action was all one sided - toward the "down" side, and quickly and with volume, implying somebody was selling hard into the Market and thereby dropping the price hard. It probably took several hundred sales to do that in a couple of minutes. As each of these sales are worth roughly $31,000 (but less cash required if on margin) one could be conceivably talking about a huge sell at market of many contracts worth millions of dollars and all placed to the "down" side. It takes somebody "big" to do that. One of the large trading houses would have enough money (or open contracts), and it would not be a small trader!

Markets can be manipulated if one has enough money or stocks (and the Market Makers do) and knows when to time it and where the pressure points are. The major trading houses have access to all this data most investors don't have, including where all the stops are and the overall volumes banked up and on what stations. They can cleverly manipulate the prices and cause a cascade in one direction or other, particularly in a single stock.

But to move an entire market, it requires a lot of help. Therefore, if you can manipulate the indicators, you can panic the players into whatever action you want - at least temporarily. It appears that is what happened today.

[shrinkermd]

"The reality of it all is that corporate profits are still weak, people are still getting laid off, and the threat of war still exists on a very high level. With all that, who in their right mind would be buying this market? One thing for sure, its not the mutual funds, as their reserves are being used to cover the record amounts of redemptions they are receiving each day."

The financial services industry, the Federal Reserve and the Administration will all have to decide one thing -- do they want individual investors in the market?

One day several weeks ago, it was casually mentioned that 44% of the trades that day (even without JP Morgan and Citigroup)were program trades of a $1,000,000 or more. This was not accounting for options, futures and special OTC derivatives. On this day, as in most days, the market is determined by large sales by professionals who legally cannot influence the market but do so in any case. Program trades that ladder a stock up are verboten. On the other hand, it appears there are sophisticated computer driven programs that can, and do, take individual and groups of stocks down in spite of the uptick rule for futures.

While the mantra to "buy and hold" is the current wisdom given to retail investors, most of the trading is short term, program trades and futures response trades which are outside of the ability and understanding of the average investor.

No wonder Merrill Lynch and others in the financial services industry have lay offs. The retail investor is leaving because the game's rules make him the "white meat" on the table of financial services industry.