Friday, June 08, 2012

Checking the parachute

If the S&P 500 index rises another 10 points or so from today's close of 1325, then that will be one indication that the correction may be over. Some of the indicators I watch are reaching extreme levels that often occur at the bottoms of corrections, but not all indicators are there yet. If the S&P climbs further and/or more indicators give "bottom" signals, then I will start to bail out of my HDGE positions.

If I do end up selling HDGE at these prices then it will result in a disappointingly small return for me. This correction had a lot of promise at the beginning, and I expected it to fall further than this, but I've never claimed to be a perfect forecaster.

5 comments:

Unknown said...

Jody, Don't you think the Fed has propped up the mkt this week by buying S&P futures? I'm sure they did so at the Oct 2011 bottom. Never seen any mkt decisively take out a strong support level and then have a powerful rally start the next week. But that's what;s going on now and it happened last Oct too!

Jody Wilson said...

I would be very surprised if the Federal Reserve Bank were buying S&P futures. Yes, the Fed can manipulate markets in other ways by buying bonds ("Quantitative Easing") and yes, I'm sure that there are financial institutions that use futures in an attempt to manipulate the stock market. But for the Fed to have anything to do with stocks would, I suspect, officially cross the "scandal" line.

Unknown said...

Have U ever seen any market have its worst week of the year followed by its best week of the year?
"Kevin Phillips infers that the simplest way for the Working Group to intervene in market plunges would be through buying stock market index futures contracts, either in cooperation with major banks or through trading desks at the U.S. Treasury or Federal Reserve"
http://en.wikipedia.org/wiki/Working_Group_on_Financial_Markets

Jody Wilson said...

Actually large up and down swings are exactly what you expect at correction bottoms.

Obviously I can't disprove the theory put forth in that wikipedia article, but neither is it provable at the moment. However we do know that the Fed and government in general have other legal and out-in-the-open methods of artificially stopping crashes and propping up prices, like bailing out companies (GM) nationalizing whole industries (Fannie Mae/Freddie Mac) and printing money - a.k.a. Quantitative Easing. It's 100% certain that the stock market would be unrecognizably cheap today if not for the above manipulations of the economy.

Jody Wilson said...

I suspect that short-term market manipulation - the kind that can stop a correction in its tracks - is being performed by the high-frequency trading computers that dominate trading volume in the exchanges today. This seems to be by far the most obvious avenue for someone to artificially manipulate buying/selling pressures on prices.