The Mob Rules - At Least So Long As Long As Goldman And The Fed Can Continue To Drive The US Dollar Into The Ocean

Why we trade day to day and not month to month or year to year anymore was illustrated by my opening remarks in last week’s WIR.

The market is set to crash - first equities; later bonds - because HB&B is going to permit it. They are aware that the Glass-Steagall debate is on fire and about to burn them beyond recognition. They are livid and have decided to sell everything. This week I alone pointed you to the fact that while there was no interest at all for equities in any market of the world there was a huge pumping action that was sending bank stocks soaring. Banks in Japan, China, India, Greece, France, Germany, UK, Ireland, and everywhere I looked were bouncing from +2% to +10% for several days in a row, which was strange because the market indexes in those countries were dropping. I came to the conclusion it was the pump before the dump.

Same thing happened with the banks this week, but so far the market has not crashed, and would not possibly for a while. It didn’t take far into the week before we made that call.

Let’s return to what was obvious a week ago and what’s happened since.

[From WIR#44] What I noted in the blog and on the trading desk this week was that many buy signals from our system were quickly being hit with offers, reversing the cycle, pushing the stocks back into the Accumulation Zone. An AZ with a falling Daily RSI-7 is not particularly attractive. A stock with a falling Weekly RSI-7 as well is downright ugly.

I cannot begin to tell you how many ugly charts I am looking at. There are a couple industry groups or sub-groups that appear to be holding their own, but did you see that on Friday there was not a single Cara 100 company stock that lifted in price. That’s right: zero for 100. That followed Thursday when the broad equity market indexes were up +2%. Talk about night and day.

After hanging in suspended animation for five trading days from about Wednesday Oct 14, five of the past six have had losses. After hitting an intra-day high of 1101.36 on Oct. 21, the S&P 500 index closed Oct. 30 at 1036.19. That’s a drop of -5.92% in just over seven sessions. Friday’s loss was -2.81%.

A week ago, I noted an ominous Friday-Monday double down. Then Tuesday, Wednesday and Friday followed suit. A second in a row Friday-Monday double down would serve as a black flag to many traders; so watch Monday. HB&B either decide this weekend to give it another shot or else they have already made the decision to withdraw except for a well-timed pump and dump of their own stock to benefit their employees who management would not want holding the bag.

Alert! Alert! Plunge Protection Team (PPT) to the rescue!

As soon as we saw a repeat of the banks getting goosed big time in markets like Ireland, among many others, we knew it was still “game on”. Hearing that two dead-in-the-water British banks, in fact the UK taxpayer-owned banks, RBS (RBS.L) and Lloyds (LLOY.L) would be seeking capital, we were not at all shocked when the Bank of England reported that, ahem, even though rates sooner than later would have to lift, the central bank would first have to pump more liquidity into the system.

Guess where that liquidity goes. Well, by definition, liquidity is aka debt to the taxpayer on the one hand and, as we are discovering, money to Humungous Bank & Broker and from HB&B right into equities, on the other.

Doesn’t seem right, but central banks are the major players in capital markets these days.

Oh, you didn’t hear? The Fed’s trading room, now all 400 traders strong, is wielding the biggest ax these days, which happens to be $2 trillion big. No longer content to manage a few tens of billions with a couple traders intervening in the T-Bill market in order to “stabilize” the US Dollar, the Fed’s trading room now manages 20,000 individual securities.

If you haven’t read the article, which was highlighted in the Community Chat on Nov 3, here is the link:
http://online.wsj.com/article/SB125720947716624249.html

If you cannot read the whole article because it’s shown as a Subscriber Content Preview, then copy and paste the article headline (as follows) into your browser, which should give you the whole piece.

Brian Sack Engineers Big Moves at Fed

The $2T FOMC hedgefund is a sad state of affairs. Their Plunge Protection Team (aka Goldman Sachs (GS) and JP Morgan (JPM)) wins and we lose. This market was ready to fall on Tuesday this week, but taxpayer money was used to hold it up.

As far as I am concerned, the concept of a free market is dead and so should Congress be for allowing this abomination to capital markets to continue. The ex-head of this FOMC hedge fund is Bill Dudley, the ex-chief economist at Goldman Sachs who then went on to replace Teflon Tim Geithner as head of the Fed Bank of New York. Before he departed he had beefed his PPT to over 200 traders, and now Brian Sack has it over 400.

http://www.newyorkfed.org/aboutthefed/orgchart/dud…

Congress ought to be ashamed.

You see, the Fed has scared the hell out of prudent folk so what used to be the safe-haven play into T-Bills is now a negative yield game, and the good folks are forced to either take their chips out of the market (art paintings and precious metal bullion seem to be the alternatives) or they are being forced to go along with the speculative pumping of equity prices, and of course the V-shaped hype that these Interventionists are spewing.

Now that most of the States and Counties of America are bankrupt, and unemployment is greater than at any time in 27 years, and more home-owners and renters as a percentage of all the people have been evicted from their homes than anytime in the past 75 years, we are told that stock prices are rising because conditions are not that bad.

Ha! I guess things are not so bad if you work in some government, education or not-for-profit organization job or, of course, at Goldman Sachs or you manage one of the hundreds of companies the government has bailed out. The rest of the people are left to hope, which is a unique concept in such a powerful country as America.

Alas, America’s gift to the world has turned from wealth creation to wealth distribution. I suppose that as long as the foreigners agree to pay for it, nothing will change.

That doesn’t mean to say you cannot make money in a country intent on wealth distribution. You merely need to position your people to be having government line your pockets.

This week, we discovered that over the 65 trading days of the quarter, banker Goldman Sachs were “blow-out” winners 64 of them. But are these people bankers, which they did to get more TARP money and avoid SEC regulation in favor of the Fed, or traders, which they have always been?

In a world where the huge majority of trades are now time-based contracts, mostly involving speculation, where there is one winner and one loser, Goldman has created a whole new branch of statistics, called the DNA of cheating. With so many daily gap openings followed by subsequent reversals, I think the probability of Goldman winning 64 in 65 is oh maybe one in 100 billion - without of course knowing in advance the direction the market would take.

Does this concern the 32,000 employees at Goldman? Not unless their boss man hasn’t papered the FBI because he just parachuted a 29 year old, totally inexperienced, non-prosecutor, into the role as head of the SEC Division of Prosecution. When maybe two or three percent of Goldman’s traders - the rest of their employees, for lack of a better word, are back-ups, trainees, investigators, promoters, administrators and clerks - are able to conspire to make $10 billion gross earnings over 65 days scamming the market, that’s quite a record. Unfortunately, it should be called a rap sheet because most of that money came out of your account and mine, and your pension, your government, and your school’s endowment.

The mob rules - at least so long as long as Goldman and the Fed can continue to drive the US Dollar into the ocean, and they can keep the American People from thinking about what’s going to happen in the future to the prices of food, energy and clothing consumables, and homes, vacations, schooling, roads, police and fire protection, and heaven forbid taxes.

But all that is for us to ponder at another time. We are independent traders with no inside access to those in government who are planning our future, so, if we are going to play the game today, we have only to look at the cards dealt to us on the table, ie, the prices on the board. For us, it’s not a matter of hope, but of being practical in trading those prices and managing our portfolios.

On the current charts, there is clearly a step-up ladder picture with the S&P 500 (^GSPC), each low higher than the preceding one, which is a sure sign of a Bull. So, until and unless the October low is violated, shorting remains a risky proposition.

Same parameters hold for next week; S&P over 1080, say, is a caution signal for shorts, while, on the other hand, breaking below the early October intra-day low of 1019 means the Bulls should pull in their horns.

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