Telltale Signs That a Significant Correction Isn't Imminent

As has been the case for a while now, in regard to financial stories reported in the media, a breaking story is reported that is often followed by a completely contradictory story just several weeks later.

The latest example of this is the following. On May 6, Friedman, Billings, Ramsey Group analyst Paul Miller stated that J.P. Morgan Chase & Co. (JPM) “would probably be the only one of the 12 commercial banks submitting to the stress tests that won’t need more capital.” Several weeks later, on June 1st, J.P. Morgan Chase (JPM) announced that it planned to raise $5 billion in a secondary offering.

Other large financial institutions, such as American Express (AXP) and Prudential Financial (PRU) also announced respective secondary offerings of $1.25 billion and $500 million.

In my May 12th article, “US Bank Shares: The Pump is Almost Over, Get Ready for the Dump”, I noted the “urgency of many financial institutions to complete their secondary public offerings of stock and debt as soon as possible.” However, given that one of the biggest beneficiaries of this crisis, JP Morgan, has just announced a secondary offering that may not be completed until the end of June, we can now be assured that the markets will not experience an extended correction until JP Morgan has completed its secondary offering.

Thus for now, we can expect this US market rally to continue or at least to channel up and down for a little while longer without an extended downturn until JP Morgan and other large financial institutions have completed their secondary offerings. While volatile trading days over the next couple weeks is not out of the question, and even likely, I believe that the volatility will remain range bound in the very short-term.

Since JP Morgan just announced its intentions to raise capital yesterday, it is highly unlikely that we will see a strong, sustained downward trend in US markets commence for at least another couple of weeks if not a couple more months. However, other important “triggers” in the international world outside of the US will determine if we see this sustained downward trend in a couple of weeks versus a couple more months.

The US stock market is a vastly different creature from the US economy, and due to massive government intervention, the US stock market can continue to rise for extended periods of time even while the fundamentals of the economy continue to deteriorate. There is no experienced, diligent observer of US stock market behavior that will deny the existence of huge anomalies in market behavior in recent weeks that point to massive intervention.

Just consider this video where the commentator notes that during one recent trading day, an estimated $10 to $20 billion entered the US markets and traded S&P futures contracts to prop up general US market indexes during the last 7 minutes of the trading session. In response to this massive injection of capital in the last 7 minutes of market trading, the analyst states, “Who has that kind of money to move the market?” The answer, of course, is the Plunge Protection Team.

I, myself, in carefully monitoring US stock market behavior in recent weeks, have seen these same massive anomalies indicative of market intervention specifically in the trading behavior of many large US financial stocks. Though the bottom title in this video states, “Is the Rally Over?”, there is little doubt and should be little argument over the fact that the US Federal Reserve and the US government will not allow the rally to end until their favored financial institutions have had adequate time to complete their secondary offerings at artificially propped-up share prices.

Do I still believe a very large correction is inevitable in the future? Of course. And when it happens, it will most likely be a very drastic event. But certainly, the Plunge Protection Team will not allow the downturn to commence until after all large US financial institutions have had a chance to complete their secondary offerings.

Comments

[thiazole:]

When all those things have happened, the economy will have recovered at least a year earlier. "Recovering" and "recovered" are the same word, but in a different tense. In case you didn't know, the stock market leads the economy 6-9 months.


On Jun 02 12:08 PM D. Narby wrote:

> Yes, employment numbers have turned from negative to positive, bankruptcies
> have bottomed, house prices have bottomed, CRE defaults have turned
> around, and banks are lending out all the money we gave them.
>
> seekingalpha.com/autho...;br/>
>
> : p

Jun 02 02:16 PM

[thiazole:]

Or it could just be because crude oil inventories have fallen by 12.1 million barrels in the past 3 weeks....
I suppose you could call is "speculative" in the sense that investors are speculating that the increased demand for oil will continue.

On Jun 02 11:35 AM fletcherchristian wrote:

> Fatcat, the rise in oil prices also signifies 'a green shoot of recovery',
> a message the gov't are clearly trying to push, despite much evidence
> that the increase is largely speculative demand.

Jun 02 02:22 PM

[djc:]

Ok Ive grown tired of the conspiracy theories too.

Surely the market shouldnt be where it is -- but here she sits, above the 200 day MA.

In any case, trying to think outside the box and at least give a positive, if not unique theory of whats going on, I have this:

Geithner and bernanke gave goldman the dough through the AIG funnel on one condition -- pay 'the people' back.

So, Goldman's making us alll whole by throwing the market up.

Of course they cant admit that, but to assuage their guilt, and comply wiht the almighty feds so they can get their ankle bracelets off, they are running everyones 401k back up -- at least some.

Youll know when your investments have been 'bailed out' when you see Barrack on the TV saying 'now its time to sell stocks'.

He speaks, stocks apparently listen.

Anyway, Thank you Golman, for at least trying to make us whole.

Jun 02 08:22 PM

[rockingandr...:]

So you are saying that we will get a recovery in 6 -9 months ......I'm sure that if you are certain of this fact then you were also certain that the S&P was going to fall big time down to 666 in March...Yes....you guys just amaze me!!!! I'm tired of hearing people like you regurgitate the media brainwash bull shit.


On Jun 02 02:16 PM thiazole wrote:

> When all those things have happened, the economy will have recovered
> at least a year earlier. "Recovering" and "recovered" are the same
> word, but in a different tense. In case you didn't know, the stock
> market leads the economy 6-9 months.

Jun 02 10:16 PM

[Johan Axelsson:]

Since this article fits my general thinking exactly (I'm a reluctant short term bull, long term bear) I love it. But besides that I think you are right again (made alot of money on your prediction about the fate of the USD some weeks ago).

Jun 03 09:34 AM

[billyboy54:]

Thanks J.S. Kim, this makes a lot of sense, and the detail about when JPM's offering is completed is crucial.

I follow your posts because of your knowledge of detail as well as your grasp of the overall picture of finance/economy.

I've done well since Dec07 by NOT following the traditional finance sites. From that video though, it looks like Fox Business has something to offer, despite my distaste for their general news.

For the doubters about market manipulation, keep in mind that that man speaking in the video is a futures trader who watches these things EVERY day.

I also watch the overall ticker every day, and have watched these reversals happen in the last five minutes of trade, over the past two years.

I have no doubt the market it manipulated, and NOT for our benefit.

Thanks again for your articles.

Jun 03 09:38 AM

[Davinci:]

I have read some of the comments.

It's amazing how people actually believe the market is not manipulated and no group is working on a larger agenda. Its like Madoff did not exist or videos of Jim Crammer explaining how he manipulates the market does not exist.

People who refuse to see the bitter truth are children holding on to the belief that Santa Claus exists. Also like children they get angry when you tell them the truth.

Sad.

I could not tell you if these childish adults deserve their fate or not.

Jun 03 11:32 AM

[thiazole:]

Childish is saying "it's a conspiracy" everytime you are wrong (reminds me of the children who would make up rules to games as they played in order to benefit them). Those of us who have matured past that phase just admit it when we are wrong instead of making up crazy fantasies.


On Jun 03 11:32 AM Davinci wrote:

> I have read some of the comments.
>
> It's amazing how people actually believe the market is not manipulated
> and no group is working on a larger agenda. Its like Madoff did not
> exist or videos of Jim Crammer explaining how he manipulates the
> market does not exist.
>
> People who refuse to see the bitter truth are children holding on
> to the belief that Santa Claus exists. Also like children they get
> angry when you tell them the truth.
>
> Sad.
>
> I could not tell you if these childish adults deserve their fate
> or not.

Jun 03 11:37 AM

[OldLimey:]

Dead right. I thought I'd largely missed the shorting opportunity of a lifetime while I was away from the market last autumn. Never thought I'd get a second chance like the one that's setting up for later this year.


On Jun 02 11:32 AM Roger Knights wrote:

> Tyler Durden and others have pointed to several specific oddities
> in trading patterns over the past months, not just daily spikes.
> Kim assumed we SA-ers were familiar with them.
>
> This propping up is setting up a great short-selling opportunity
> down the road.

Jun 03 11:49 AM

[obewon:]

Couldn't have said it better than "doubleguns."

The great American financial scam continues! The big "investment" banks need to raise more capital through secondary offerings (i.e. to be read as "they need to find enough fools to buy their stock quickly!").

So barring a financial disaster during June:
the PPT, FED, and the master manipulators JPM and GS will do their best to keep the market from sinking in June.

The old addage: "sell in May and go away" is now, for 2009:
"sell quickly in July, before the ship sinks."


On Jun 02 08:12 AM doubleguns wrote:

> Kim, I believe you have nailed it!! Great insight.
>
> We can not stop the fleecing only protect against it. However I have
> had to get out of my shorts since the pain has been to much.
>

Jun 03 12:12 PM

[PainfullyAware:]

"Those of us who have matured past that phase just admit it when we are wrong instead of making up crazy fantasies." - thiazole


When do "Crazy Fantasies" become popular fact?

The Earth Was Flat At One Point In History and Death Camps Did Not Exist In World War Two Germany. Both of these canons of "Truth" were shown to be false => After Further Scrutiny.

Belief and Labels create a construct that does not allow for further evaluation when new data is presented.

conceptwizard gave a synopsis of Actual Entities earlier in the comment thread that have the Mandate And Mission To "Influence" The Beloved Market. Denial of their existence is to relegate their effects as "Magic". There is a much larger and complex interaction beyond the financial realm.

To Assume Benevolence Is Foolish.

The More You Know The Less Certain You Will Become.

October-November is going to be a bit crazy. The true state of Economic Meltdown will be hard to deny and the limit of "Free Money" from the Treasury will be reached. (No, money can not be "Printed" indefinitely; Eventually the math shows that the debt is not serviceable.)

We May Save The Banks But Destroy The Country.


On Jun 03 11:37 AM thiazole wrote:

> Childish is saying "it's a conspiracy" everytime you are wrong (reminds
> me of the children who would make up rules to games as they played
> in order to benefit them). Those of us who have matured past that
> phase just admit it when we are wrong instead of making up crazy
> fantasies.

Jun 03 01:42 PM

[Whippet:]

I also agree with Kim's timing, as this will also coincide nicely with Q2 earnings season. The banksters don't need to cough up the potentially ugly mark to myth data until then, and will be sure to recapitalize on false pretenses.
As for conspiracy theories, I consider myself to be a rational, scientific, sober realist. And that makes it a whole lot easier to believe Tyler Durden, J.S. Kim, and the rest of their apocalyptic cohorts than the shill coming from the messiah, Timmy, Bennie, Krugman, and Summers. For once, the facts seem to be on the side of the "wackos."

Jun 03 02:36 PM

[silver-bullet:]

All we need to do is to pull up the charts and take a look at the trading volume toward the end of the day.

Conspiracy or not, facts are facts - the data don't lie.

Jun 03 09:45 PM

[doubleguns:]

Yes I admit it!!! I am a wacko.

But I can sleep good at night. Obviously you and most others on this site can too.

The truth will set you free even if it is a conspiracy.


On Jun 03 02:36 PM Whippet wrote:

> I also agree with Kim's timing, as this will also coincide nicely
> with Q2 earnings season. The banksters don't need to cough up the
> potentially ugly mark to myth data until then, and will be sure to
> recapitalize on false pretenses.
> As for conspiracy theories, I consider myself to be a rational, scientific,
> sober realist. And that makes it a whole lot easier to believe Tyler
> Durden, J.S. Kim, and the rest of their apocalyptic cohorts than
> the shill coming from the messiah, Timmy, Bennie, Krugman, and Summers.
> For once, the facts seem to be on the side of the "wackos."

Jun 05 01:18 AM

[H. T. Love:]

Go here baltimorechronicle.com... and look for the "Plunge Protection Team ..." heading. And I'm sure that a quick google could find a lot of other, maybe more authorative, references like executive orders or whatnot.

On the other hand, you might ask for help doing your own research rather than spewing pejorative terms about the work of one who does do his research. There is no requirement for "spoon feeding" on this list.

Having got that off my chest, let me add this. Regardless of the beneficial or, at worst, benign intentions of the PTP, we must remember we are dealing with the government's activities. I have NEVER observed a tool available to government that would not be abused by it sooner or later. The best recent example is technology: wiretaps (euphemistically since we're really talking about "over the airwaves") on the private conversations of the civilian populace without court authority. Using available technology, it was a "mass scan", not targeted at certain suspect individuals only.

My Humble Opinion,
HardToLove


On Jun 02 08:50 AM gurb wrote:

> Dear Kim,
>
> Your speculative report tells nothing except more conspiracy theories.
> Everyone can speculate but news reporting need to have certain factual
> content. So show the evidence of this special protection team. The
> last minute buying is essential short covering due to some late news
> and fear of sudden spike in prices next day.

Jun 06 10:32 AM

[H. T. Love:]

LOL! Oh you sly wit you! ;-)


On Jun 02 08:22 PM djc wrote:

><snip>
> In any case, trying to think outside the box and at least give a
> positive, if not unique theory of whats going on, I have this:<br/>
>
> Geithner and bernanke gave goldman the dough through the AIG funnel
> on one condition -- pay 'the people' back.
>
> So, Goldman's making us alll whole by throwing the market up.
>
> Of course they cant admit that, but to assuage their guilt, and comply
> wiht the almighty feds so they can get their ankle bracelets off,
> they are running everyones 401k back up -- at least some.
>
> Youll know when your investments have been 'bailed out' when you
> see Barrack on the TV saying 'now its time to sell stocks'.
>
> He speaks, stocks apparently listen.
>
> Anyway, Thank you Golman, for at least trying to make us whole.

Jun 06 10:39 AM

[H. T. Love:]

Absolutely! But remember that we operate on "incomplete data".

So the real fun comes in trying to deduce what caused the observed events. You know, formulate a theory, test it against more observations, modify to account for anomolies, ..., rinse and repeat.

It's a "conspiracy" called "The Scientific Method".

Nothing is more fun in the intellectual-exercise arena.

HardToLove


On Jun 03 09:45 PM silver-bullet wrote:

> All we need to do is to pull up the charts and take a look at the
> trading volume toward the end of the day.
>
> Conspiracy or not, facts are facts - the data don't lie.

Jun 06 10:48 AM

[razorthin:]

Well said. Now, how in he!! can this be legal???? Why do we sit idly by, knowing a generation of 401Ks and other investment/retirement accounts are about to take a hit that will take 100 years to recover from???? This is criminal!!!

Jun 06 03:52 PM

[untrusting ...:]

Here is the Fox Business link for the whole Dan Shaffer video

www.foxbusiness.com/se...

Jun 14 01:58 AM

[untrusting ...:]

thizole,
Or it could be that is the interpretation you choose to put on it despite much evidence to the contrary (and purely because it attemtps to support your bullish statements) such as:
1) Inventory draws are largely due to lessor imports and have nothing to do with what you are implying which is a demand increase. US oil Inventory is still clearly at record 15 highs.
2) At least two of the most knowledgable oil experts, Schork and WTG Economics, and most others give their professional opinions that the fundamental outlook for US oil is bearish and there is virtually no support factors for the recent rise in US oil prices.
3) Every major oil company executive that I have seen has also commented that they see no fundamental reasons for the recent rises in oil prices. Nor have any of them changed any of their capital spending budgets in anticipation of any expectation that oil prices will continue to stay at these higher levels.
4) Nor have you been willing to acknowledge the obvious, which is that with recent higher price moves in oil, that it is obvious that OPEC, Russia, Venzuela, and every other cash strapped producer will rapidly move to flood the oil market with increased supplies to attempt to capture the speculative price move upwards.
5) Nor are you willing to acknowledge the shadow inventory of over 100 million barrels of oil sitting offshore and purchased by Goldman, JPM and other speculators at cheap prices. Which in some part were due to Goldman forecasts/fear-mongering of $20 oil just a few short months ago. Nor are you willing to consider the "conspiricy motives" of Goldman recently revising their oil forcast to about $85 oil just recently. Now Goldman wouldn't have any vested interest in their revised forecast now would they?
6) Natural Gas pricing is going nowhere. You would think that if energy demand in the US was truly recovering NG would also be recovering to some extent. It is not and nobody is expecting it too anytime soon.

Or a whole litany of other factors which are extremely bearish for US oil prices in the ST to medium term.

But then again, it seems you are more than happy to expound on any data or factors such as green shoots, leading indicators, marginal second derivative improvements, etc. to attempt to support you bullish view.


On Jun 02 02:22 PM thiazole wrote:

> Or it could just be because crude oil inventories have fallen by
> 12.1 million barrels in the past 3 weeks....
> I suppose you could call is "speculative" in the sense that investors
> are speculating that the increased demand for oil will continue.
>
>
> On Jun 02 11:35 AM fletcherchristian wrote:

Jun 14 02:48 AM