Zeev's Turnips Patch-No Politics (ZEEV)

[augieboo]

Joe Stocks,

Most readers are familiar with The Washington Post story written years ago about the Plunge Protection Team, a committee formed after the 1987 stock market crash made up of the President, the Secretary of the Treasury, the Chairman of the Fed, Comptroller of the currency and large Wall Street firms such as Goldman Sachs, and Merrill Lynch.

WRONG

The Working Group shall be composed of:
(1) the Secretary of the Treasury, or his designee;
(2) the Chairman of the Board of Governors of the Federal Reserve System, or his designee;
(3) the Chairman of the Securities and Exchange Commission, or his designee; and
(4) the Chairman of the Commodity Futures Trading Commission, or her designee.
#msg-447963

***********************************************************

The incredible amount of leverage in today's financial system through the use of derivatives could bring down the whole system by one hedge fund simply ending up on the wrong side of a trade.

That is a silly assertion.

Yes, a major derivatives meltdown at one of the larger banks, or perhaps a really large hedge fund, could cause a great deal of damage if not contained. But it would require a heck of a lot more than one bad trade.

************************************************************

when markets are so highly leveraged or geared as they are today, falling markets and program trading mechanisms automatically trigger additional selling which then begins to snowball into a crisis.

Gee, from what I've seen, every time the markets seem to be about to "melt down" during this bear it's program BUYING that kicks in.

**********************************************************

When viewed from this perspective, the unnatural phenomenon of the markets make more sense. On days when economic reports such as the trade deficit, the unemployment report, housing starts, and retail sales come in poorly, the markets plunge only to rally at the end of the day. (etc.)

So what? Since when does day-to-day news move the markets in anything longer than a day-to-day time frame?

************************************************************

Each time the markets have touched the July and October lows of last year, remarkable miracles occur in the financial markets. When it appears that the markets are ready to breach support levels, the markets suddenly spike up for inane reasons.

I think Puplova needs to study some very basic TA -- as in the concepts of OVERBOUGHT AND OVERSOLD.

Overbought markets tend to go down.

Oversold markets tend to go up.

There, mystery solved.

***********************************************************

This familiar pattern can be discerned in July, October, and last week. They usually begin by a surprise upward surge in a plunging market, a spike up at the opening bell, or a gap up at the open, or series of opening gaps.

Yadda-yadda-yadda.

Bear rallies go up, and then they go down.

I suppose these rallies were PPT-created too?



In case my chart does not show up, click here: http://home.earthlink.net/~augieboo/ihub/pptnot.png

************************************************************

It is part of my engineering a rally thesis. I have written about this in the past and it bears repeating to understand how this cycle works. The four-step process is as follows:
1) Intervene in the market (done by buying futures)
2) Higher stock prices through intervention forces short covering
3) Stock prices that lurch higher brings in momentum players
4) If the rally lasts long enough, John Q may move money into mutual funds. This happens just about the time the rally fades.

Well, he's got steps 2, 3, & 4 pretty much correct, but step 1 can be accomplished in any number of ways and for any number of reasons, the primary of which is that


Oversold markets tend to go up.


*********************************************************

The danger technically is that with so many eyeballs and computer screens watching, the same technical charts breaching key support areas would generate further selling pressure. (etc.)

Yep, it would and does generate more selling pressure, except when somebody decides to squeeze the shorts. The Specialists (and MMs in general) have been doing this for a hundred years or more. Read Reminiscences of a Stock Operator, or if you're in a hurry, just read this piece on bear market rallies by Adam Hamilton: http://www.zealllc.com/commentary/rallies.htm

“Markets are never wrong, opinions are.” – Jessie Livermore.

************************************************************

Conclusion:

Yes, the PPT exists, and it probably intervenes from time to time. But I'd be willing to bet that this intervention is a heck of a lot more selective and subtle than most folks around here care to admit.

If you don't know how to read charts, start learning. If you're too lazy to learn, then either get the HE!! out of these markets while you've still got some assets to your name or wait and trade only Zeev's Dow Gambits.

(:

augieboo