Somewhat quaintly, perhaps, I've always clung on to the belief that it wasn't possible to rig the overall market. It's most often a complaint heard from traders who have suffered losses and are looking for someone else to blame. That's not my style, though. I honestly feel that the only reason I've ever lost money in the markets is my own stupidity, usually in failing to follow the rules. But I can never remember hearing quite so many people saying that the markets are manipulated as they are today.
S&P: monetary machinations
The upper panel in this chart shows the S&P 500 since the current bull run began in March 2009. The lower panel shows the Federal Reserve Bank of New York's efforts to add reserves into the banking system. The chart seems to leaves little doubt as to the effect of these activities on stocks. The heaviest phases of these so-called "permanent open-market operations" have coincided with the S&P's strongest gains, while the index has struggled whenever the taps were turned off.
According to a calculation by broker Charles Stanley, the effect of these so-called "permanent open market operations" over the past five years has been to raise the index 400 points above where it would otherwise be. I defy anyone to tell me that this is a healthy state of affairs, as least as far as the medium to long term is concerned. But in the short run, who cares? Since we know which way the market is being rigged, surely the strategy is just to jump aboard and enjoy the ride?
At the moment, the chance would be a fine thing. Take the booming Nasdaq 100, for example. It gave a change-of-trend buy signal on its swing chart on 13 September and has since gained 11 per cent without giving any repeat buy signals along the way. The FTSE 100's last signal was on 3 September, with the Dow's on 20 September. Of course, there are other indices, such as France's CAC 40, which have given at least one repeat buy signal in this period. But I didn't react to the one in the CAC, given three weeks ago, as I didn't like the choppiness of the chart overall.
CAC 40: Non, merci
I repeat my comment of the other week that I've got no ideological opposition to going long, rigged market or not. I just need the right opportunity to arise. And I'm pretty sure I'm not going to get that just after the indices have rampaged higher for two straight months, causing momentum and sentiment to register fairly stretched readings in the process.
The moment of truth for the markets could be upon us very soon. The Dow and FTSE are all but back at their April highs, while the S&P 500 is not far off. It would be very surprising if there was not at least some sort of pull-back around these levels. We are also now near a turning point within the 87-day cycle, which has proved so dominant in this year's trading to date. As you'll recall, we got a bottom where the last top was due, so I am wondering if we'll now get a top instead of a scheduled bottom.
S&P's cycle turns soon
Although the euro violently reversed its initial losses against the dollar last week, it has since shown further signs of hesitation. If the single currency does crack once more, I think we'll get the decent sell-off in equities that I want to see.
Euro's dizzying heights
