Saturday, August 11, 2007

PPT Part Deux
Many people can produced charts much like the ones above and the one below. This is 2007 and what is interesting is the amount of strong buying at "critical moving averages" As the indices are about to break the long trending moving averages, more often than not, there will be big buying (usually computer generated trades) to whisk them to high ground causing investors to regard there is a strong bounce from "not breaking long trending moving averages usually the 200 day moving average".
Of course the counter explanation is that there are a lot of quant funds, and usually these computer models to buy at critical levels. That would hold water but these quants would not have the balls or gumption to do that day in day out or even try to lead reversing the market. What I think is the PPT generated trades come in first thus triggering the quant funds into action as well. Sometimes the down trend is so strong it is highly unlikely that quants will be wanting to lay on the train tracks themselves as the last bastion.
When the stock market is at risk of plunging, it is alleged that the PPT will employ the this tactic i.e. dipping into the Treasury Department’s US$40-billion US Exchange Stabilization Fund to buy S&P 500 index futures and cause spreads to widen between the futures and cash markets for equities. This then gives arbitrageurs a chance to reap risk-free profits by shorting the futures contracts and buying the stocks in the S&P 500 basket. Just consider the way the US markets closed again on Friday (reversing almost all of a triple digit losses most of the day). It is hard to believe otherwise as it has happened too often, and this time on a Friday to boot.


PJ-investor said...


What does this actually means anyway?
Are they (the party who injects the fund in) believing that this mini-meltdown is over reacted? That's why they are injecting fund to prevent the free market from correcting itself?
What is their purpose in doing this?
Do they want the stocks to climb until we have a global bubble? which means preventing from stock falling and just pushing it to the higher high?
i just dont understand. Are they covering-up the actual fact that America is actually on the way to their down-cycle whereby Asia now is on the way to their up-cycle according to the life cycle where we have ups and lows.
Anybody care to explain?

Salvatore_Dali said...

PJ Investor

What his means is we wil nevr have and never have totally free markets since the late 80s ... as always the ideal situation (freemkts) is an ideal ut is hard to accept in reality. The sheer growth in derivatives and options mkts, and rise of heavily funded quant funds make intervention by a ig ower a necessary evil. I don't think they want an ever bull mkt, but that corrections do not turn into a blood bath. Just look at the 97 crisis, can u imagine if no one intervened and Malaysian ringgit go to 5 to the dollar for a prolonged time. It will kill off certain compnies and even industries, cause havoc among neutral households, the collateral damage which may be harder to recover from.

sopskysalat said...

A rebound from -343 to -15 for dow and a positive closing for s&p, should i credit the PPT for yet another round of support? Likely.