Monday’s Stock Market Rally: An Engineered And/Or Mechanical Event?

Friday afternoon’s last minute major ramp job set the stage for Monday’s breakout. It was either pure manipulation, margin call recklessness before month end or some combination of black box strategies. Rumors swirled that it was JP Morgan (JPM) in the pits buying tens of thousands of S&P futures contracts with some leftover TARP money. Others suggest a conspiracy that it was the government. We’ll never know probably.

The set-up is well chronicled by Karl Denninger of The Market Ticker. (Please read his excellent recapitulation of these events). He does an excellent job in describing the action.

This led to a follow-through in Asia and Europe. In the US we got the usual “better than expected” reports from Industrial Production and Construction. Having pushed through the 200-day MA that sucked-in money from bonds and we were off to the races.

So, was this an engineered and/or mechanical event? Who’s to say? I found the entire episode manipulative and upsetting.

Volume wasn’t as spectacular as price action but breadth was as positive as one would expect.

So what kind of games are we playing here? The tape is reality but what if it’s created artificially or by some outside mechanism? Well, it’s still reality but it makes you question the integrity of markets and the people running the show. But then they were always thought of as manipulative SOBs, eh?

Consumer spending is a key to economic recovery and must demonstrate renewed demand for housing, autos and consumer credit. That is missing and the government is supporting the consumer (who is saving more than spending) and the financial sector (who are trading more than lending). How long can they do this before they take away the punchbowl? Good question but I don’t have the answer.

Disclaimer: Among other issues the ETF Digest maintains positions in: IEF, TLT, TBT, UDN, DBV, GLD, DBC, DBA, EFA, and EEM.

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