Options Trader Weekend Update: Charts, Art and Market Manipulation 24 comments
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Like all good art, charts are subject to interpretation and different people will see different things, and come to different conclusions - from looking at exactly the same thing. That’s why I like to look at lots of different charts and try to check my bias at the door and let art speak for itself. Here are a few that caught my eye this morning, starting with this interesting S&P chart by Ichimoku, who uses the SPX Price/TRIX daily divergence to catch a possible correction brewing just ahead of us (something I agree with for fundamental and technical reasons):
(Click charts to enlarge.)
Interesting stuff! Of course, I will caution members (as I had to when everyone was getting "Head and Shoulders" fever) that these are unprecedented market moves and "normal" charting techniques will often fail you here. We have record amounts of cash on the sidelines in proportion to the size of the market, which itself is trading on low volumes, which means it doesn’t take very much to override a bearish chart. It also would not take much of a panic to wash out the relatively small number of people who buy into the market every day.
As I mentioned in yesterday’s comments, just 20M out of 1.3Bn of IBM’s (IBM) shares were exchanged yesterday at prices that averaged $112.50 per share, yet that $2.25Bn worth of rangey trading upped IBM’s total market cap by $6.5Bn. Should the other 98.5% of the shareholders decide they’d like to get the $115 closing price for their shares, they may find the "value" isn’t quite what the chart says at the moment. This is nothing against IBM, they are worth about $115 - as long as not too many people want to sell it at once or then, like the entire market in November and March, when IBM was trading at $82 and hit our Bargain-Basement Buy List, a stock is just worth whatever you can get for it at the moment.
For example, what does this IBM chart tell you? Certainly it’s not telling you that IBM will be making a new high in 10 days… We did pretty much bottom out at $99.50 the next day, but the move from $100 was 100% this week and IBM hit $110 (up 10%) before the earnings were announced. Market sentiment can turn charts on a dime, and market manipulators tend to time their "news," like Meredith Whitney’s much publicized bullish call on financials that was timed perfectly for Monday’s open, or Nouriel Roubini’s "bullish" comments that were also used to goose the markets on Thursday. I’m not saying that Whitney was herself manipulating the markets, but think how easy it is for GE/CNBC to SCHEDULE her for the date and time they wanted in order for her announcement to have the desired effect. While Whitney is thrilled to be taken seriously and credited for moving the market, Nouriel Roubini cried foul, citing CNBC as using him for their own agenda as they took his words entirely out of context.
Why would the fine broadcasters at CNBC do such a thing? Well, perhaps because parent company GE (GE) knew they were going to have a stinker of a quarterly report and wanted to garner some favorable market conditions in which to drop their bomb in to cushion the impact. Beleaguered CEO Jeff Immelt faced down a lot of angry shareholders in March as the stock dropped to less than 20% of the 2-year average. Still hovering around $12, what do you think the impact would have been if GE had announced mediocre results in an unfavorable market? As it was, the company dropped 8% on Friday but that was only giving up 1/2 of the Whitney/Roubini rally that was led by 5 days of pom-pom waving on GE’s financial network.
Now, Immelt himself only owns 1.7M shares of GE stock, but I’m sure he has just tons of options that are underwater. If that’s not motive enough, he has $123Bn worth of shareholders who will certainly want to know what happened to their other $300Bn and are losing their patience, so there’s some serious motive. The means is CNBC, and the opportunity is the ability to filter the news in order to create an environment that allows you to add $20Bn in market cap over 4 days ahead of an earnings report that shows you should have gone $20Bn the other way. Case closed, book ‘em Danno!
Does that sound too conspiratorial? Maybe I am being a little unfair. After all, CNBC did report that Barclays Capital analyst Jason Goldberg lowered his estimates on a number of banks (not GE) Monday, but he also projected the second quarter will show a continuation of several positive trends seen in the first quarter, including a strong capital-markets environment and a solid mortgage-refinance backdrop. Goldberg also expected an improvement in service charges and for market-related write-downs to continue declining, so, generally, a positive report. On Tuesday afternoon, when the markets were flagging, CNBC reported that Barclays had raised their 2009 target for the S&P 500 to 930 from 875 saying:
"Looking ahead, we think the market will break through the midpoint (850) of its recent range (1000-700) this summer before enjoying the second leg of the ‘recovery rally."
It is interesting to note that Barclays is the single largest shareholder of GE, something I must fail to overhear in the disclosure statements when the guests come on CNBC, and that their 424M shares jumped over $400M in value this week. I’m sure things are on the up and up at Barclays (BCS) as they just appointed Bush’s Under-Secretary of State for Economic Affairs, Reuben Jeffery III, to the Board of Directors. Mr Jeffrey was a managing partner at Goldman Sachs (GS) and was also the chairman of the Commodity Futures Trading Commission under Bush during the biggest commodity rally in history before being promoted to Under-Secretary for all his good work there.
Yes, charts can be very useful in giving you a picture of developing trends, but what’s been killing traders lately, and especially the poor bears last week, is the way those technicals have been snapped for seemingly no reason at all. When Disney (DIS) owns ABC and GE owns NBC and CBS (CBS) is owned by the world’s 86th richest man ($9Bn) and Fox (NWS) is owned by 132nd richest man ($4Bn), who also now owns the Wall Street Journal - WHAT DID YOU THINK WAS GOING TO HAPPEN?
Ned Beatty explained this all to us in Network, way back in 1976, when he told us:
There is no America. There is no democracy. There is only IBM and ITT and AT&T and DuPont, Dow, Union Carbide, and Exxon. Those are the nations of the world today… One vast and ecumenical holding company, for whom all men will work to serve a common profit.
What do you think the Russians talk about in their councils of state — Karl Marx? They get out their linear programming charts, statistical decision theories, minimax solutions, and compute the price-cost probabilities of their transactions and investments, just like we do. The world is a business. It has been since man crawled out of the slime.
Well, it seems to me we are still stuck in that slime. It’s a new age of market manipulation where all of your news comes from the same corporations and every wave of consolidations drives the wealth of this nation into the hands of fewer and fewer people. As pointed out on Boston Legal recently, not only are we losing our choices in news sources, banks, car companies etc., but now our nation is once again getting bought up by foreigners. In the ’80s it was Japan, now it’s China. Japan ended up getting hosed because they bought at the top, but China is sitting pretty, having stockpiled over $2Tn in dollar reserves right when our few remaining corporations are desperate for cash.
I wonder which network will be sold to China first? Rupert Murdoch (who is already very tight with China) already opened the doors to foreigners taking over US media interests. Our stock markets have already started trading like those crazy Asian markets. Why? Manipulation is why. Control of the media by government and business allows focused messages to go out to the people so investors can be stampeded in and out of the markets at the will of the people who control the message. Heck, maybe it is time to give China a turn, after the way we’ve messed things up over here.
Now that China has Africa on track, I’m sure they can come over here and straighten things out!
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This article has 24 comments:
If you are scared of dollar delflation, investors naturally run to commodities and stock. Furthermore as the dollar sinks foreign funds that want to keep their country bet percentages the same will naturally go to someone like Goldman Sacs to help them rebalance their holdings by buying US equities to offset dollar declines.
As always, dollar weakness is good for the stock mariket but not neccesarily good for the public at large. It is all perception. Devalue the currency to make everything look fine and dandy even though we are falling off an economic cliff. Lemmings are happy until they fall off a cliff.
As has been shown in the last 10 years, government is great at making fools of it's citizens' blind trust.
Not true: in a democracy no one is in change except the people and they are out to lunch. We are drifting, not being driven anywhere. In the meanwhile we must have some faith, in what is your problem.
Something else to think about....why is the US gov making it so difficult for banks to return the unneeded TARP money...ask yourself where is this money sitting? It's not under the bank CEO's mattress but in "safe" government securities waiting to be returned.
P.S. Good luck with that medicare....too bad more US media and politicians don't mention that Canada, the birthplace of medicare, is going broke funding it.....if current trends continue, by 2030 all of Canada's GDP will be required to pay for it! Even the sweet deals on drugs aren't helping control the costs.....Obama and his supporters are living in a dream world. The only solution is removing government entirely from healthcare. Let the free market drive the cost of medical services down and the productivity and quality up, as it has done in other industries left free from government intervention (vs. autos, banks, insurance, etc......all with high government intervention, regulation, and oversight).
All fact....not opinion!
It has been very common over the last several years for family or friends to call me or ask me about something that one of the clowns of the airways says about a buy, buy, buy, stock pick, a fast cash trading idea, or maybe an economic recovery indicator such as hearing that real estate is all better now.
It’s absolutely frightening the number of people who hang on these words and advice or maybe are so beaten down that they don’t feel like they have any other hope. You don’t think that the networks could possibly be aware of all of this or that some psychological game may be taking place…nah that could never happen.
I have been telling everyone to please not forget that none of these experts warned you to get out of the market last year and all of them are still on the air everyday with fervent resolve about what the market is going to do next and what you should be doing with their…I mean your money. This is kind of like being a local TV weather person; you can still punch in the next day no matter how bad you screw everything up.
You know that if the financial news networks ever disappeared from the airways that the mystery of where the next round of mortgage and car sales people will come from will have been solved.
On Jul 18 02:07 PM dcb wrote:
> You think the manipulators are looking at the same charts as you
> and know when to turn things on the head and shoulders pattern. this
> week was the worst for manipulation I have seen yet as there was
> no rational basis for the extent of the move.
Looking at a daily chart of the SPX, we hit 956.23 on 6/11/09. We then spent almost 2 weeks in a text book "zig zag" first leg of a corrective move. This was followed by not a real "rally" but a reaction high of the correction during the last week of June. Finally, around July 1, we sank into another 2 week "zig zag" which we broke out of last Monday.
This was not a very complex correction, but it was more complex than a simple A down B up C down move. When you look for market corrections, you have to consider the type of market you're in. We're in a sideways trading market right now, particularly the S&P, financials, consumer staples, consumer discretionary, et al. Even tech was sideways for a few weeks. Indeed, we saw a sideways correction, which had two very sharp and distinct down legs to it. The little mini rally packed in between the zig zags wasnt an upward move at all--we didnt make a new high, it was simply reactionary buying and trading. Trading from chartists who understood the pattern and knew they'd have a few days to turn profits on the long side before getting out again. Anyone who was buying as an investment in that period, after the double-top like move near 950, and an obviously incomplete correction underway, likely got hosed pretty good.
Nonetheless, there are literally hundreds of correction patterns I've seen before, and this was actually a pretty popular move-they're referred to as "expanded flat" corrections. Its indicative that we're pretty much range bound, so the middle part of the correction is an upward to slightly flat period that ends up minimizing the severity of the correction overall.
Clearly we broke out of the correction with an upward move. Now, are there strange things happening in the indices futures markets? Yes. Does someone seem to throw billions of dollars into the equities markets every single time buying begins to slow? Yup. Does the news or fundamental data besides earnings have anything to do with stock price movements? No (IMO at least). Does Goldman upgrade/downgrade equities and commodities to suit themselves? Yes. Thats why I fade their moves in the short term at least. JP Morgans moves too. Last three I faded? IBM downgrade....cmon? Obviously a stunt to clear buyers away from this stock so they could jump in and scoop up a few million shares on the cheap -- $100 or so, before using their leveraged position to sell into the earnings week and subsequent rally. Look for IBM to fall as soon as goldman unloads their 10 million shares they bought. Shouldnt take much longer than end of this week. Don't believe me? Look at the volume on 7/10 (day of the downgrade) and first thing Monday 7/13. Insane, volume nearly as heavy as friday when they reported the number. There's Gooooooooldman for ya.
Crude oil? Price target slapped on in the middle of June, I think it was $85 by end of year. LOL> again, cmon. Goldman spent all of April and May pumping up the price of crude, and juicing related equities like Suncor, Oxy, some of the integrateds, drillers, well & servicers, you name it. Gotta spike demand so you can sell into the rally right before earnings to boost your own number right? Not saying crude wont get to $85 by end of year....just saying its obvious you have to fade their calls. I bought SCO (ultrashort DJ crude oil index) the day after their call. Nearly doubled in 3 weeks, on INSANE volume....volume that picked up the day before the Goldman call. Hmmmmm ? Not only did Goldman pump the equities to dump them, but they piled into the ultra short SCO to make even more money as oil slid.
I can go on forever...Goldman price tag of $60 on JPM? HAAAA. JPM, so called "not in need of capital after stress tests" announced equity offering like 2 days later. Again, GOldman could dump the JPM shares they bought below $30 for $35 each and up. RIMM? God, another one obviously putting Goldman kids through college. Goldman bought millions of shares before Q1 earnings, below $60, slapped a $90 price target on it with PLENTY OF TIME before earnings to ensure they could unload it all in the mid $80s.
Um, I'll stop here.
My points: Nothing wrong with the charts. We're in an uptrend, get used to sideways and less than spectacular corrections. The last correction was a textbook move, no manipulation ended that early. Shorts got burned for either getting in late or in the steep reversal last Monday.
Fish activity? Absolutely is going on. But the most you can do is wait a day or two after goldman or jpmorgan makes a call, then fade it. When they upgrade, expect a selloff of their position. When they downgrade, that means they're accumulating. Their price targets? Only meant to increase/decrease demand of a stock they want to buy or sell. Dont get caught on the wrong end of the goldman moves, study some correction patterns so you can identify them all, and we can all make money with Goldman Sachs. If you cant beat 'em, join em.
BTW--I'm not condoning what they do. It stinks, the rest of the world hates America because of it, but unless you're running a hedge fund, you gotta wait for market direction before moving. More successful traders know that the most money is made when you're in a position before a crowd. Unfortunately, with manipulation as it is, you can get burned badly trading prematurely these days. You're better off doing the following: Only day trade short positions, anything more than 1 day and you'll get slammed so hard you'll lose all your profits cuz of the reversals going on and futures spikes at 330 pm. I'm not going to name stocks, but volume is more important now than ever if you're buying individual stocks. its not hard to see where Goldman/JP Morgan/M. Stanley, et al., are--most of the market is dead quiet but then you'll have some stock trade 10X average volume. Well, thats where you need to be, even if it doesnt make sense. Look for stocks that never sell off on high volume. Good chance goldmans there too. Finally, again, cant stress this enough, either fade or avoid their price targeted stocks, commodities and upgrades/downgrades.
If he could sell his soul to the devil he would buy it back with a reverse takeover!
The Roubini thing pissed me off they way it was reported. Roubini did not come on until Fast Money. Cramer and Kudlow taped promotions and content still touted the mis-information. So much for 6-sigma and the ISO-zero CNBC has.
But money is made when things move. The tip-off was when everyone was noticing and mentioning the S&P h&s pattern - we were warned the nacent shorts were going to get pounded.
Now watch the fall - about Wed after the rollover calls are written to the suckers on Mon and Tue. Watch oil stocks plummet - they have only recovered 50% or so.
Don't be naive. Goldman Sachs, JP Morgan and Morgan Stanley are manipulating this market with the use of the Federal Reserve slush fund. The GE owned CNBC is simply a mouthpiece for the same crowd. All of this market bullish action will, inevitably, crash and burn into either a Greater Depression, or, even worse, a worldwide Great Hyperinflation.
We have a narrow minded academic, in the form of Fed Chairman Ben Bernanke, who was put into office because the PPT players know his mind is focused entirely upon the Great Depression. Add to that the corruption and nepotism of Henry Paulson and Timothy Geithner, and their pawns and underlings. That is what is now causing the fall of America.
In every civilization, there comes a time when it is time for a massive, often negative, transformation. That time is unfotuantely now, for the United States. History does not repeat exactly, and the American Republic looks like it will be converted into a corrupt oligarchical state, rather than an Empire, as the Roman Republic once was. We can stop this now, if we all act together, but what is the likelihood of that, given that the powers-that-be are so expert at gaming the system?
No news is good news;
Good news is no news; and
Bad news is news.
China, on August 2nd, will allow foriegn investments without the previous rule of having to go through their central bank. All along, Cramer has said he would not invest in any Chinese stock, stating repeatedly that, "...with a stroke of a pen," crap--though last week he said he would now own China Unicom (CHU). With the likely billions upon billions flowing into the US from China, the thinking here is that no way would China dare nationalize any of their country's privately owned entities, when so much of their wealth will be, and already is involved with the US.
And what, possibly, will the Chinese wealthy citizens invest in? Well, here's a clue: the Chinese government have already bought large percentages of Australian mining companies, especially rare metals, and have also invested heavily in Canadian oil sands. I'm betting they will also go after tech, banks, gold, and communication stocks.
If long you should already be out. If not get going. For those with the fore sight to have already done so, carefully put on some mild short position. There is no way there is not a sharp scary pull back coming in the next few weeks. It could start form higher levels but if you ease in with SDS you will make money. Take out 8000 on the DOW is the target.
> Its less the news driving the market, it's more the program trading
> desk. As for low volume, as always it is not a good indication of
> good price discovery regardless of whether there is manipulation
> going on...
> ...Lemmings are happy until they fall off a cliff.
Moon,
Interesting comment, as always, but your final analogy unwittingly played into Mr Davis' point about media manipulation.
That is to say, lemmings do NOT actually commit mass suicide, but gullible TV viewers were merely convinced that they did. The origin of this myth was a single 1958 Disney-filmed wildlife special in which the unscrupulous filmmakers threw the poor critters over the edge themselves, and the lemmings weren't hurled into the sea either (the segment was shot in Alberta, a land-locked Canadian province). For those who'd like to read more about it, here's one of many links out there that debunk this cruel falsehood: www.wildlifenews.alask...
Again, I don't bring this up to change the subject to a discussion of wildlife, or even to slander Disney, but merely to point out that Mr Davis is bang-on when he talks about the importance of manipulation of public opinion via the media. Time and time again, control of public opinion via control of the major media outlets has proven to be the ultimate difference-maker, and the concentration of media ownership around the globe should indeed be a major cause of concern for every one on the lower parts of the totem pole. Lately these guys have indeed been using the media outlets at their disposal to goose the markets at every turn, because as Mr Davis points out, these guys will not tolerate a serious erosion of their share price.
There are people & companies trying to sway the market and this is where we can actually profit because they can only blow bubbles for so long before those bubbles burst.
> When people are losing and all bears are losers, they look for excuses.
> The market was driven last year by total panic. What little movement
> the market shows now will be up. There are no sellers left.
Actually, according to Lowry's there are plenty of sellers and buying power is not showingthe strength one would expect from a bull market.