'Painting the Tape' - Wednesday's Suspicious Trading Pattern

 |  Includes: SH, SPY, SSO
by: Golden Economizer

There was a suspicious trading pattern on SPY at the close, which looked liked a form of manipulation called “Painting the Tape”. My definition of this is “last minute buying or selling to manipulate the closing price of an exchange traded equity.” In a previous article I explained why a manipulator would benefit from manipulating the closing price.

click to enlarge

Click to enlarge

This chart of SPY trading for the day of March 25, 2009 clearly shows that at about 3:45 pm EST, there was a spike in selling that brought the price of SPY down just below its 50 day EMA of $79.96, which was met with two strong waves of buying on steadily increasing volume, right up until the closing bell, that popped it up to its closing price of $81.45, the third straight close above its 50 day EMA.

This is highly suspicious trading activity. It appears as if some big money manipulators wanted to sustain this sucker rally using options or futures on SPY as the tool, to bring more buyers (suckers) into the already overbought markets. SPY is a proxy for the broad equity market, and the availability of options and futures allow it to be easily manipulated at a much lower expense than having to buy all the individual equities in the S&P 500 underlying index. I have seen this pattern of manipulation before, and if anyone has a better explanation for it, I would like to hear it.

Disclosure: I am long SRS and SKF