The informal consortium of cooperating interests is showing signs of breaking up. Never forget that the side that manipulates the market has an unlimited supply of unearned money to use. Both bulls and bears within the general population can only trade with money they have earned plus what they can borrow on margin.
Here is what I am looking at. Techniques of drawing in short sellers are not working as well as they have in the past. Pumping stock prices is difficult without the presents of short term short sellers with stops. Retail brokers are still sharing customer’s position information with high frequency traders. Very few retail customers short actual stocks. Even one customer shorting just one hundred shares or an odd lot, can trigger a short squeeze in a certain issue. High frequency traders follow retail transactions the same way sophisticated traders in days passed used odd lot short statistics. To a manipulator one small short sale transaction represents a general thought pattern of naive traders in general.
The news media hasn’t turned negative but occasional stories with real information are starting to bubble up here and there. The media and advertisers have the same general interest as wall Street firms. The media, however, can not take a chance on appearing stupid or seeming unaware.
Your government began the practice of supporting asset prices during Reagan’s administration following the 1987 crash. From that time on, government policy has supported stock prices indirectly 100% of the time. In 2003 as the 2nd Iraq war was starting marked the beginning of direct intervention. Henry Paulson was appointed Treasury Secretary in 2006 for the express purpose of keeping asset prices elevated and moving them higher. That worked until 2008, The QE initiatives were introduced in 2009 and have been present ever since. From this point on, to move stocks higher, manipulators will have to carry risks themselves.
There is no question as to whether or not stock are getting outside support. This is the weakest time of the year, historically. Any follow through to the downside from here will hurt the general economy and could possibly cause enough fear to render any orchestrated attempt to support the market unsuccessful.
A danger they face now is a growing awareness of the general public. Most people are unaware that all of government’s gifts to wall street come at their expense.
Central banks can increase their investing directly in equities and they might. Any further decline in stocks will make corporations re-think their buy back plans. Losses on their own stock may become staggering.
I am still 70% cash and 30% bearish positions. I will say, so far so good. The increase from 20% bearish to 30% has come mostly from profits. If the market crashes suddenly, I am willing to live with that ratio and be less than fully committed to the short side. As dramatic as crashes can be, there is more money to be made on a slow decline of the same magnitude. When a market crashes, bulls can’t close their positions and bears can’t get fully invested. We have to live with circumstances as they are and not as we wish them to be.
The market is going down. That is for sure. Getting positioned for the coming decline is very tricky. Many times, bears who are impatient, lose all of their capital before the decline starts. That scenario needs to be avoided above all else.