Monday, September 27, 2010

9/27 7pm

Market manipulation is the focus in a number of comments so I'll create a post to hang comments onto.
The conspiracy theory du jour is that treasuries are purchased and the banks receiving the funds leverage them to pop the stock market, ostensibly through either HFT or futures trades or both. The funds appear in the marketplace at 2:00.  The large banks, in my mind, now are reducing their proprietary trading operations due to new regulations.  Investment banks (those that are not chartered as commercial banks) don't have this restriction.  I believe Goldman Sachs is wildly unethical and would manipulate if they did not fear any repercussions. The government has no such fears and has the motive to make buy-side manipulation.  The only reason short squeezes exist is fear of getting taken out by forced delivery by the loaning broker and the smaller size of the short population.  This makes the short side easier to pop out of position. I would not put this past Goldman Sachs, but how would they 100% cover their tracks?  If they are found out they would lose their franchise to steal in less egregious ways.  The Fed and Treasury have no such fear.  So, GS is a possible for me.
Seeing the market pop up from 2:00 on so consistently has shaken my belief that the market is too big to manipulate.


  1. e·gre·gious/iˈgrējəs/Adjective
    1. Outstandingly bad; shocking.
    2. Remarkably good.

  2. Not only does the market ramp at consistent times, it also pops at every trendline both on the price chart and on the indicator charts (like the nyse tick). Computers are in 100% total control of this market. They're the only ones trading. SPY traded something like 70mm shares through 2:30pm EDT today and we've had 20 straight weeks of mutual fund outflows. The market just feels unstable and when it breaks, it's gonna be ugly.

  3. I don't think the short squeezes are due to forced delivery. I have shorted for years and I have never had that happen. I have been on call, but a minor reduction in a too large position will satisfy the call. I think short squeezes are pretty much the same as squeezing the longs: there is a limit to the losses that one is willing to take on a position, and of course the pros favorite game is clearing out the stops.

  4. It depends on how liquid the company's shares are. If the broker no longer has the shares to lend most brokers will call for delivery. Most brokers will not go outside of their street name inventory. If you stay with the big names then this is not a problem. I've been called in the past.

  5. One more reason I don't trade company stock any more. Unless there is a big float there are problems. With ETFs I have one less thing to worry about.

  6. Squeezing shorts is a lot easier than squeezing longs. Shorts tend to use leverage and represent a much smaller universe to squeeze.