Market manipulation wearing off?

As I’ve noted countless times on these pages, this market is being manipulated… heavily. And these last-minute rallies have come at the hands of JP Morgan, Goldman Sachs, and other large Wall Street firms. I know personally of at least two instances in the last two weeks in which JP Morgan stepped in and bought 1,000 S&P 500 futures at critical points, pushing the market higher just when it looked about to break-down.

You can see this in the chart below of the S&P 500. Stocks staged late day rallies on August 6th, 10th, 11th, 13th, 14th, and 17th (that’s only the last two weeks) The most critical rallies came on the 10th and 11th. Without those, the S&P 500 clearly was heading for 980 in a very rapid fashion.

It’s important to note that this late day manipulation can only last as long as there are equity bulls who believe in it. That is, buying a ton of futures only kicks off a rally in stocks if there are enough stock bulls who believe that someone in the futures market knows something they don’t. Much like in poker, you can only run the table when you’ve got a patsy or two to pony up the cash.

And the stock market ran out of patsies last week.

The above chart shows the S&P 500’s daily action in one-minute increments. As you can see, traders shot for late-day rallies on both the 17th and the 18th. Both days, they failed to get enough bulls to buy into the manipulation (stocks rolled over in the final minutes). They did manage to stage a major rally at the end of the week, thanks largely to options expiration and Bailout Ben pumping $46 billion into the system.

However, now with options expiration out the way… and in light of the turnaround to the downside, I’d argue that:

1) The bulls are out of steam.

2) Reality is taking hold.

Stocks are severely overbought now. And yesterday’s turn-around collapse looks to be a herald of things to come. I wouldn’t be surprised to see the S&P 500 back at 980 very shortly.

via Seeking Alpha.

Who knows whether the above is true or not. What can be said is that A) the theory of market manipulation has some support in Pigou who said that markets quite often boomed and busted due to psychological biases that caused people to overinvest in useless things or excess capacity, such a world could surely also be manipulated in the manner mentioned above, and B) It can’t be out of the realm of possibility in a world where 70% of market volume is comprised of High Frequency Trades.


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