Market Manipulation?

Total volume since mid July has hovered around 1.2 billion shares. The only real pick up in volume has occurred during the September and December expiration of futures on the third Friday of the month. The only other increase in volume accompanied the sell off into the low on October 2 and November 2. It is very unusual for the market to gain so much ground without a pick up in volume. I have noted this in my monthly letter on a number of occasions. The market has rallied primarily because there has been no selling pressure. I have attributed this to institution's faith in the recovery story. If you believe earnings are going to get better, why would anyone want to sell, especially someone who believes in buying and holding as most institutions do.

Many market participants believe markets know something about the future, that markets discount recoveries and recessions. Sometimes this is true, but often this is not true. Markets are a reflection of perception, not reality. What was the stock market telling us about the credit crisis in October 2007 when it was making a new all time high? Or gold in 1980 when it peaked over $800, and then fell for 19 years? Or how about what the Nasdaq was telling us about the New Paradigm in 2000 when the composite soared to over 5,000? My point is that the current rally has convinced a growing number of market participants that a recovery must be coming, otherwise the market wouldn't be going up this much. Sentiment readings are beginning to show that the number of believers is growing daily.

The notion that there has been an attempt to manipulate the market sounds like heresy or some kind of looney conspiracy theory. But if one stops and considers what has been taking place, is it really that out of reach? Everything the Federal Reserve, Treasury, and government has been doing has been some form of manipulation. Some would defend their actions by saying it has been done to protect the economy. Let's hope so. But it certainly has been done to protect a number of large institutions that were responsible for the mess.

The following analysis is both interesting and thought provoking, since it highlights the type of strategy that would be used to help the market move higher, and convince any doubters that the recovery is on its way.

Happy New Year and Best Wishes to you for 2010!