Tuesday, February 10, 2009
The impact, and probable purpose, of this buying is to drive up the price of stocks and to ‘rescue’ the market from a technical failure that would have ensued by a breach of the November lows.
A belief I hold, formed from watching this same pattern play out dozens of times, is that such upthrusts in the price of stocks do not reflect a change in their underlying fundamental prospects, but rather are mere technical affairs driven by a few interested parties, who have the ability, and the deep pockets, to horsewhip prices off of key technical points.
But that is merely my belief, as I have nothing to go on besides having watched the futures premium (for the S&P 500 contracts) perform some very odd and very bold departures from the cash market at key moments.
I’ve seen this repeatedly over the past few years.
For example, on Friday (Feb 6th, 2009) the worst job losses in 34 years were announced. What happened to the stock futures? You’d be forgiven for assuming that this news would either be treated as bad, or, at best, neutral, but it was greeted by the largest buy-at-the-market futures order that I have seen yet this year. More than 59,000 S&P E-mini futures contracts were bought within minutes of the market open (at 9:37 and 9:38 a.m. EST). If you don’t know what this means, it means that a LOT of money was poured into the market at a key moment and that the amount was well above normal.
You can either choose to believe that thousands of "investors" suddenly came to the same conclusion about how great 558,000 jobs losses were for the American economy and wanted to buy stock futures at any price at precisely 9:37a.m., or you could be forgiven for wondering if these futures were bought by somebody whose interest in buying them was not strictly economic in nature.
If these departures represent the actions of an actual investor playing with their own money, they are very, very bold, because they have repeated the same action, in the same manner, dozens and dozens of times.
In market trading, once your competitors figure out your pattern, they can set against you and eat your lunch by running the table in the opposite direction against your positions.