I started writing about organized support of the stock market as far back as October 2005. Back in 2006 Henry Paulson, as the county’s first activist Treasury Secretary, re-popularized the Plunge Protection Team concept but more than anything gave it respectability and normalized its practices. The Plunge Protection Team was organized by Ronald Reagan for the purpose of limiting the 1987 stock market crash.
Who are the members of the Plunge Protection? Who cares? All we have to do is observe trading patterns and be aware of its presence. There is no way to get honest answers about these kind of things anyway. When the stock market is being moved higher, it is like there is a cement floor under stock prices. There is always overnight communication and a unique plan for each trading day. Notice that when popular stocks correct intra day, there are typical levels where declines stop. For example, any stock than has been green gets support before it turns red. Stocks that are going to be used to support the averages are easy to spot. Anyone who follows a lot of stocks can see this easily. Suppose there is weakness on the opening. Out of 100 popular stocks you will notice a few that open weak will start popping in and out of green during the first hour. When this happens, there is about a 100% probability an intra day turn around is about to be engineered. High frequency trading firms are really good at keeping stock prices stabilized when downward momentum slows. In an honest market, about half the time, stocks going down will resume their decline after consolidating. When government, by way of the Plunge Protection Team, is managing stock prices, any consolidation pattern is actually a bullish formation. The consolidation pattern is kept stable until enough short sellers take positions so that they can be squeezed, moving the stock back up.
The Plunge Protection Team boils down to a number of organization with immunity from prosecution for violating securities laws. The get information from the Fed and others far before it is available to everyone else. They basically trade risk free for now, but possibly not any more. There is no way to tell when they can no longer profit from the advance information they are given. They are not going to buy and hold. When they can no longer trade risk free they will vacate the arena. The is still very little stock being sold off from long term holdings.
There will be no crash as long as the Plunge Protection Team can prevent one. So, far this fall, they are doing a good job. The market will crash when the Plunge Protection Team members start cutting and running. Some central banks are already buying and holding stock to support their national markets. There is no way to tell what and which heroic measures will be taken to prevent a reckoning.
For these reasons I have no advice on how to play global weakness with equities except not to own them. As it is there is little relationship between stock prices and the viability of corporations. Unless tons of stock start coming on the market, there is not much way for the market to break down through the Plunge Protection Team’s cement floor. It will happen but predicting when is not possible presently. My current thoughts will are that we will continue creep down for the foreseeable future. When we finally drift down 10% on the big cap averages there will probably be an orchestrated media campaign to the effect that, “There we had or correction. Everybody dive back in”
Still, all it would take for the bottom to drop would be for Trump to suddenly blurt our that government has been goosing stocks and that is why they are higher. Hillary Clinton is already talking about taxing high frequency traders. All parties are acting in their own interest and when is helpful to one politician or another they will break up the party.