Today confirms the theory that international banks will begin to delever and unload positions ahead of a Fed rate hike.  The following was written by GTM on Sunday April 18, 2010 (source).

The SEC has been sitting on the GS indictment for nine months. They finally decide to release during market hours on a Friday OPEX–curious. Was this done to mask distribution?

On Thursday [04/15/10] GS traded 7M shares and on Friday it was 100M. Compared to GOOG that did 6M and 12M or BAC’s 240M and 590M. C had 1.8B shares traded on Friday. Citigroup and Bank of America stock are looking more and more like war debt service vehicles.

A working theory is major banks are being used to service the U.S. debt. Primarily the war debt created by an expanding corporate empire. In 1720 England used stock in the South Sea Company to offload its war debt on the investing public. It was the first major financial scam to coin the term “bubble.”

Read more here:  Where the New PPT Hides

International banks (IBs) are now sitting on $1,200T in interest rate swaps. That’s $1.2 quadrillion dollars. It has peeled back $300T from last year. A squeeze on JPM alone could bankrupt the system. There is not enough free credit in the world to deliver on their $70T swap positions. There’s also not enough silver in the world to deliver on the total COMEX silver short position. It represents 100% of the total visible and recorded silver bullion in existence (source).  Owners of silver futures alone could squeeze the world’s largest bank by demanding delivery. Think of it. A new Sons of Liberty movement could once again stick it to New York stock jobbers. People could squeeze JPM just by asking for delivery on their silver. That’s a nightmare scenario for them. Why give you something real, with real value, when we can convince you to trade it for worthless paper instead.

Everyone is now learning how JPM illegally manipulates the precious metals market to suppress inflation. How about GS and their monopoly control of the stock market. Goldman Sachs is behind 1 out of every 10 trades on the NYSE. Is it unreasonable to think they would manipulate equities in the same way?

The Fed can’t lend money for free indefinitely. Soon the U.S. will be forced to raise cash. The Fed will have to raise the prime rate and it will stress the system. Unless prime dealers like JPM, GS, MS, UBS, etc. unload their leverage without tanking the market. This is the cornerstone to understand. Much of the recent rally is short covering. Look at the short % of total float on major names. Many stocks are near 20% short. We’ve seen higher highs on very low volume. That’s not new money buying up the market. It’s basically a short squeeze that can be used to cover real distribution by the IBs. They will have to unload somehow before the rates are raised. There’s a strong connection between this concept and silver manipulation. Friday’s selling was a warning that distribution is taking place.

Notice today’s crash happened right after 2:30pm where a halt would not happen.  Now active traders need to be aware of upcoming PPT action.

A 6:1 negative day (or greater) has not reversed in the last five years without PPT intervention. In order to bet on something like that, the market has to be making a scary new low. If we revisit January lows start looking for a PPT day that can reverse the most obscenely negative NYSE A/D.

Review of what is required:

* Market at new lows/breaking point
* Relatively high VIX
* High CBOE Put/Call Ratio
* Major pressure on the Financials [banks -20%]
* Negative NYSE Internals [worse than 5:1]
* Political pressure
* Fear/Panic

Read more here: Anticipating PPT Days

Review of NYSE Cicuit Breakers:

http://www.nyse.com/press/circuit_breakers.html

“The choice is between which mistake is easier to correct: underdoing it or overdoing it.” -Tim Geithner May 30, 2008

Ever notice how official speeches to prop up the US capital markets are timed right before a massive sell off?  How about those last hour rallies when the market looks really bad?  Today was a great example of a Plunge Protection Team (PPT) trading day.  This article will explain who they are, how they operate, and how you can profit.

Consider the background story on today’s market.  Does it make sense to engineer a rally while stalling on a stimulus plan.  The Washington wait-n-see numbers game is going strong.  Politicians, and the money behind them, are holding their ammo in reserve–no matter how often they deny this agenda.  They did it with the auto makers two months ago. Remember that?  A bailout was going to save the auto makers and then the market rallied out of nowhere, just when all looked lost.  The auto bailout almost became a non-event. The critical size of their cash infusion was nowhere near the size initially rumored.  The reality is, credit needed to cover all systemic threats to the market doesn’t exist. They wait and see for who is about to die, then they jump.

GTM covered this topic in detail last year, during a similar market environment.  You can read the full story here: Front Running A Systemic Market Crash: PPT Style.

Mechanics of the PPT
The following is from Robert McHugh, Ph.D. at Technical Indicator Index:

The origin of the Plunge Protection Team Intervention Risk Indicator:

For the past several years, we have seen repeated “out of the blue” short-covering rallies just about the time a  decline seems to be gaining some momentum. Our suspicion has been that the “Working Group” established by law in 1988 to buy markets should declines get out of control, has become far more interventionist than was originally intended under the law. This group has since been dubbed the Plunge Protection Team. There are no minutes of meetings, no recorded phone conversations, no reports of activities, no announcements of intentions. It is a secret group including the Chairman of the Federal Reserve, the Secretary of the Treasury, the Head of the SEC, and their surrogates which include some of the large Wall Street firms. The original objective was to prevent disastrous market crashes. Lately, it seems, they buy markets when they decide markets need to be bought, including equity markets.

Their main resource is the money the Fed prints. The money is injected into markets via the New York Fed’s Repo desk, which once upon a time showed up in the M-3 numbers, warning intervention was nigh. But, in November 2005, the Fed announced with little comment and no palatable explanation that it would no longer report the M-3 number after March 2006. Without the useful resource of M-3, we needed to find other tools to monitor when the PPT is likely to intervene, prolonging a rally and killing shorts.

For the PPT to be effective in driving markets higher, the potential for a sustained turnaround rally depends upon a high volume of open short interest. By measuring this short interest by the level of CBOE put options, we can gauge when markets are ripe for PPT intervention. The way it works is, the PPT decides markets need intervention, a decline needs to be stopped, or the risks associated with political events that could be perceived by markets as highly negative and cause a decline, need to be prevented by a rally already in flight. To get that rally, the PPT’s key component — the Fed — lends money to surrogates who will take that fresh electronically printed cash and buy markets through some large unknown buyer’s account. That buying comes out of the blue at a time when short interest is high. The unexpected rally strikes blood, and fear overcomes those who were betting the market would drop.

These shorts need to cover, need to buy the very stocks they had agreed to sell (without owning them) at today’s prices in anticipation they could buy them in the future at much lower prices and pocket the difference. Seeing those stocks rally above their committed selling price, the shorts are forced to buy — and buy they do. Thus, those most pessimistic about the equity market end up buying equities like mad, fueling the rally that the PPT started. Bingo, a huge turnaround rally is well underway, or a rally already underway is extended, and sidelines money from Hedge Funds, Mutual funds and individuals rushes to join in the buying madness for several days and weeks as the rally gathers a life of its own.

Ways to Build Edge for a PPT Rally

Look at the Fib 49.20 reversal on the VIX from the Oct. swing high and Jan. swing low:

Look at the 3min bars on FAS when it broke consolidation at $7.55.  This was a good setup. Another piece of edge for those anticipating a PPT push, which turned a breakdown into a clean W shaped day:

This is what a PPT rally looks like.  The prior day’s closing hour was a clue this could happen today. The yellow arrows show yesterday and today’s PPT push (right back to the previous day’s close–coincidence?):

This is what it looked like for the S&P 500.  Intraday you can see it happen with a massive push, the biggest move for the day:

Conclusion

Some people are calling today a bottom.  They are calling for a sustained bull rally.  Please consider our explanation of the PPT in lieu of a greed based wild guess.  We are in the greatest bear market of our lifetime.  Do you really think this market can turn around–suddenly?  See the Picture of the Day and draw your own conclusions about the overall market direction.