Who Is the Mystery Buyer?

I don’t know if any characteristic of this massive 6 month rally has been more apparent than the huge futures run-ups we’ve seen at random points during the trading day. Without news, the S&P 500 futures get gunned on huge volume and surge higher. I’ve seen it at least every other day for 6 months. It tends to occur on low volume days such as the one we’re currently experiencing. As you can see in the chart below, the futures are getting gunned on massive volume without any coinciding volume in SPY. This means an institution is jamming the futures higher knowing that they can drive the market higher on no volume. Effectively, they can take out every asking price with a large enough order and immediately create a 0.25% bump in the market in no time. If you’ve been wondering why we’ve seen huge surges on low volume days and conviction high volume selling on down days this explains much of it.

I don’t know if there is malfeasance behind this or if the buyer is simply too stupid to input trades at the bid (like most rational investors do as they try to achieve the best low price), but this is certainly an odd phenomenon that I cannot recall occurring so routinely over the course of my career. Who is the mystery institutional buyer that just needs to place their huge block orders with such urgency?

Comments

[Nathaniel C:]

You will also see this type of action after the market close and during the European session.

Nov 10 04:19 PM

[schlumpf:]

Hmmm who is the mystery buyer ???
Lol, no Idea??

Nov 10 04:30 PM

[inthemoney:]

JPM or GS - you pick. Usually, it looks like JPM.

Nov 10 04:36 PM

[ff4444:]

George Soros?

Nov 10 05:26 PM

[Graham Jervis:]

computer algorithms?

Nov 10 05:57 PM

[ardon:]

Guys, it is the shadow Plunge Team, i.e. the Government Committee on Financial Markets that is manipulating the market.

Nov 10 05:59 PM

[The Geoffster:]

The Shadow knows.

Nov 10 06:18 PM

[fleeing omega:]

All I know is that in so doing they convinced me not to put my money on their table.

Nov 10 06:47 PM

[Robespierre:]

"I don’t know if there is malfeasance behind this or if the buyer is simply too stupid to input trades at the bid (like most rational investors do as they try to achieve the best low price),"

I wouldn't worry. I'm sure the SEC has noticed this manipulation and is conducting an exhausting investigation to make sure laws/rules are not being violated by IBs not authorized to break them by GOD at least that is my understanding.

Nov 10 06:58 PM

[User 284071:]

I read an incredibly similar article just a few days ago. Go to Minyanville.com, and see Mr. Practical's article from last Thursday called "Strange Days". He claims that under TARP, the primary dealers can REPO stocks each night, to the Fed. They drive up the price during the day, REPO them to the Fed, take a riskless profit. In the process, this "reflates" the system, (much the same like printing money).

Nov 10 07:02 PM

[Jason Tillberg:]

"Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves . . . I intend to rout you out, and by the Eternal God I will rout you out!"

That was said by Andrew Jackson... and he did indeed rout them out.

"World's Big 3 i-bankers plan record $30-bn bonus: Goldman Sachs Group, Morgan Stanley and JPMorgan Chase’s investment bank, survivors of the worst financial crisis since the Great Depression, are set to pay record bonuses this year"

Looks like they won and will be dividing the profits amongst them this year. Last year, they lost and went to the citizens of the US for a bailout. I.E. They charged losses to the treasury. Our kids will pay those losses back in the future by working for the Chinese company instead of having money to go to college.

Nov 10 07:06 PM

[Dibber:]

There's nothing nefarious about this. It happens on high volume days also, but gets drowned out in the volume. It's often large prime brokers executing lazy trades for big customers. The late day buying on up days is often leveraged etfs that are required to put in their adjusting positions before close. On down days, this goes in reverse. Intraday buying is often mutual funds/index funds with capital inflows. They have no choice but put the money to work, and generally aren't paricularly focused on the execution of their trading. This same type of mutual fund liquidity buying happened in the late 90s. It's a very bullish sign.

Nov 10 07:09 PM

[rick12345:]

Again, who cares? The culprit has done absolutely nothing wrong except to scorch a few greedy miscreants who themselves are trying to short (manipulate) the market. Why should thousands of pension funds suffer at the expense of another's gluttony?

Nov 10 07:44 PM

[MarketGuy:]

Col Mustard in the librar...wait, wrong forum.

Hello...a hint, it rhymes with "Moldman Racks" (good luck with that riddle).

The "real" buyer of origin is the taxpayer (through the Fed then again through GS).

Madoff (from his cell)- "wow, I thought my scheme was bad..whew."

Nov 10 07:59 PM

[inthemoney:]

> Again, who cares? The culprit has done absolutely nothing wrong except to scorch a few greedy miscreants who themselves are trying to short (manipulate) the market. Why should thousands of pension funds suffer at the expense of another's gluttony?

It would be fine if "the culprit" acknowledged this "program" in advance. Otherwise it amounts to insider trading , potentially with taxayers money, which includes said miscreants.

Nov 10 08:23 PM

[Robert Radano:]

Through multiple federal intermediaries billions in US Dollars are sloshing through global financial markets. We are living in a world where the Fed has decreed zero interest rates for another six months; probably longer. The old Fed Playbook forced money into riskier fixed income securities and then, as asset allocations models dictated, some of that money rotated into equities. Therefore, those above who have referenced "dumb" money trades are probably accurate. In this day and age even smaller traders have the sophistication afforded by Bloomberg and other data services, to see these waves on the horizon and front-run them. In addition, ETF's, (and leveraged ETF's,) are faced with the problem of matching their synthetic positions to a very real index and they must accomplish this task for relatively small fees. All of these, and other prop desk issues are forcing anomalies that lead to some bizarre prints on the tape.

Nov 10 08:59 PM

[Owen:]

That's right...some evil mastermind is pushing the market higher just to spite us!

It's amazing how even in the absence of any motive or mechanism, people will still come up with the most amazing conspiracy theories.

No one can move the cash stock market simply by buying small amounts of S&P futures on low-volume days. The reason for that is that there is effectively unlimited capital behind index arbitrage traders, so you'd never see the spread between the cash market and the future's fair value drift by more than a tick or two, except during massive crashes.

Rapid, large block trades in the S&P futures can be the result of any number of things. These include mutual funds rolling over their December contracts to the March ones, hedgers or 130/30 funds being forced to rebalance after a large transaction, a hedge fund being forced to cover a short due to an impending margin call, or even a foreign government trying to diversify a multi-billion dollar portfolio.

The S&P futures are the basic tool of the trade for any large equity trader. When things need to be done in a hurry, they go to the CME "spooz" pit, or--more often these days--the Globex E-mini S&P terminal. Large blocks change hands all the time; we only notice them during low-volume days, when they move the futures market.

> I don’t know if there is malfeasance behind this

Nov 10 09:19 PM

[rick12345:]

If the program was designed to discourage investors from placing ridiculous short positions on undervalued stocks, then I support it 100%. Secondly, how do you deem the purchase of equities at market value "insider trading" ? Intentionally keeping a price low in order to close an existing position is an attempt to manipulate the market, but purchasing stock at a higher price is not. As for manipulating the stock price of 500 companies single handedly, I think not.

Nov 10 09:22 PM

[00Billy:]

Maybe Melinda Gates opened a an online account -trades are $7!

Nov 10 09:50 PM

[inthemoney:]

> Secondly, how do you deem the purchase of equities at market value "insider trading" ?

It would be insider trading because those executing the trades have information that can move the markets and the information is not available to anyone else.

I guess, it is the same thing as the currency intervention, which is an acceptable practice by many governments. But the difference here is that currency trades executed directly by the government. The stock market /futures trades, if such actually exists are executed via a proxy and the proxy profits from them.
Also, currency interventions are expected because there have been many precedents. Stocks market interventions are not expected.

Nov 10 09:55 PM

[ashadu:]

just because your not parinoid, doesnt mean they're not after you!

Nov 10 09:55 PM

[Mike McCurdy:]

If I am not heavily long at the time of these conspiratorial spikes then clearly, it is the shadow government market manipulators that are juicing the futures.

PS - those two charts quantify nothing.

Nov 10 10:14 PM

[TheDecider:]

Small orders? The volume was over 50K in this 5 minute period. That means the order on the E-minis could have been well over $1B. You call that small? Who has the firepower to execute an order like that at the asking price? Better yet, who in their right mind would execute an order that large at the asking price? No trader would ever do that knowing that they were going to drive the market up 0.3% as it did.

This would be a conspiracy theory if it weren't the absolute truth. There is simply no other explanation that the government or some connected entity pushing up prices.


On Nov 10 09:19 PM Owen wrote:

> That's right...some evil mastermind is pushing the market higher
> just to spite us!
>
> It's amazing how even in the absence of any motive or mechanism,
> people will still come up with the most amazing conspiracy theories.
>
>
> No one can move the cash stock market simply by buying small amounts
> of S&P futures on low-volume days. The reason for that is that
> there is effectively unlimited capital behind index arbitrage traders,
> so you'd never see the spread between the cash market and the future's
> fair value drift by more than a tick or two, except during massive
> crashes.
>
> Rapid, large block trades in the S&P futures can be the result
> of any number of things. These include mutual funds rolling over
> their December contracts to the March ones, hedgers or 130/30 funds
> being forced to rebalance after a large transaction, a hedge fund
> being forced to cover a short due to an impending margin call, or
> even a foreign government trying to diversify a multi-billion dollar
> portfolio.
>
> The S&P futures are the basic tool of the trade for any large
> equity trader. When things need to be done in a hurry, they go to
> the CME "spooz" pit, or--more often these days--the Globex E-mini
> S&P terminal. Large blocks change hands all the time; we only
> notice them during low-volume days, when they move the futures market.
>

Nov 10 10:18 PM

[TheDecider:]

I think the more important question is why does the government hide their intervention in the markets? We all know they do it. It is likely in the best interest of the country.

Nov 10 10:22 PM

[isurfmb:]

The plunge protection team consisting of the Fed, Treasury, SEC, CFTC and "large market particpents" as a 1989 executive order, was constructed to stablize markets in volatile times. Well we certainly have volatile markets,and with the zero carry trade for the large banksters we have developed large market players. Gee didn't Goldman just report record qtr. profits from of all places their trading desk? I'll bet the house they were'nt trading baseball cards. Remember with the yen carry trade the Bank of Japan twice bought the Nikkei. If you're having a hard time finding inflation just look at declining corporate revenues, increasing unemployement and rising stock prices,classic stagflation that's what the markets are telling us, not recovery.

Nov 10 10:27 PM

[The Pragmat...:]

Perhaps you are correct. Perhaps they represent nothing. That would be a relief, however, as someone that used to execute large institutional orders I have a hard time rationalizing why anyone in their right mind would execute a several hundred million dollar block trade well above the asking price on a relatively quiet day. These orders are generally filtered thru several brokers over the course of several hours or even days. What motive does such a large buyer have besides jamming the price higher? It would be conspiratorial if it weren't true....

Perhaps I am wrong and someone has a rational explanation, but it simply doesn't add up.

Furthermore, I have been long at several critical junctures of this rally including calling the March 8th bottom to the day (pragcap.com/coming-thi...) and before each earnings season. So no, I am not just some bitter short seller who can't explain why the market keeps rising....Just another investor trying to connect the dots. Heck, perhaps this is a reason to be bullish?


On Nov 10 10:14 PM Mike McCurdy wrote:

> If I am not heavily long at the time of these conspiratorial spikes
> then clearly, it is the shadow government market manipulators that
> are juicing the futures.
>
> PS - those two charts quantify nothing.

Nov 10 11:20 PM

[BKLee:]

Isn't it a coincidence that no one knows where most of the stimulus money went. Maybe the Government is behind this stock movement.
With 100s of billions, you can certainly move the market!
Just a thought.

Nov 10 11:23 PM

[YK Options:]

They are merely setting up the technical plays...Haven't anyone noticed the 6% drops followed by an average of 10-15% increase in the SP 500? In its last drop to 1030, that should push us to 1130 within the next 8 weeks coinciding with the potential end of year rally.

Have you also noticed the fact that the last few corrections are getting bigger (i.e -7%)? Play the technicals and ride the SP 500 up to 1130 like we are currently doing with ease and then short it down from 1130 to 1080.....a break below 1030 will finally break that trend and bring in the real correction....otherwise, play the technicals for an easy Christmas gift this year.

Nov 11 01:33 PM

[User 422597:]

I would not be surprised if the mystery buyers are organised by The Plunge Protection Team. The U.S. Department of The Treasury "Statement by the President's Working Group on Financial Markets October 6, 2008" refers.


On Nov 10 04:30 PM schlumpf wrote:

> Hmmm who is the mystery buyer ???
> Lol, no Idea??

Nov 11 02:36 PM

[bleetbleet:]

i cant believe you're only just noticing this. look during the globex session, its so obvious, can see clear marking up and down and before news is even released, often hinting at whether the news will be good or bad.

Nov 11 10:39 PM

[jgam2665:]

The Government manipulating the market.

Nov 11 11:29 PM

[Owen:]

The E-mini averages over 5,000 contracts a minute during regular trading hours. A total of 50,000 contracts in a 5 minute period is not unusual at all.

You don't need one billion dollars to buy a notional value of $1B in S&P futures. Based on current margin rates, you'd only need about $60 million, a mere trifle for most hedge funds. And if it's done as part of index arbitrage, the amount needed is far less.

Why would the government need to "stabilize the market" after a 65% run-up from the March lows by buying the S&P on low-volume days? If you must dream up conspiracy theories, at least come up with plausible ones.


On Nov 10 10:18 PM TheDecider wrote:

> Small orders? The volume was over 50K in this 5 minute period.
> That means the order on the E-minis could have been well over $1B.
> You call that small? Who has the firepower to execute an order like
> that at the asking price?

Nov 12 07:15 AM