Market Action, July 15 2010 - SEC, Machines Jam the Market

If you needed any more evidence that the market is run by machines all banging out correlation trades, look no further than today.  The TSX Composite spiked 60 points in a manner of minutes on news that the SEC would be holding a press conference to announce a deal with Goldman Sachs. 

There is no fundamental reason why the Canadian stock market should spike on news of a settlement by a foreign regulator with a foreign company, unless one believed that Goldman was threatened with collapse and would have to blow out their prodigious Canadian inventory, a dubious notion given that criminal charges were not in the cards.

Rather, the intra-day spike in Canadian stocks merely reflects what the stock market has become – a plaything for machines and algobots driving correlation trades across any and all markets. 

You, simply put, don’t matter.

You will not read many articles about market manipulation conspiracies here at Running of the Bulls.  Not because I don't think they exist.  Rather, I think they rarely exist, or at least exist much less than the conspiracy theorists - who are usually on the wrong side of the trade, either monetarily, intellectually or both - believe.

However, the timing of today’s announcement reinforces the notion that government agencies manipulate the market.  What other reason to announce a settlement at 3:30pm other than to jam the market into the close?  Legal negotiations and settlements with the government are protracted affairs.  The government does not rush to the microphone before the ink is dry.  Government agencies are slow and deliberate. This settlement was not finalized at 3pm today, with both parties feeling the need to immediately disclose material information.  

Today’s press release had the effect, at least temporarily, of halting a market slide that may have taken us to new lows for the year.  At 3pm, the market was rolling over and threatening to head to session lows.  This would have signaled a near-term top, creating a bearish formation and likely leading to more weakness in the days ahead.  Instead, the news prompted a 22 point spike in the S&P 500 in the last half hour, a 1.2% gain, and the market closed on the highs. 

Now, whether or not the announcement was timed specifically to stop a downward slide today this very minute is debatable.  What isn’t particularly debatable is that market-moving announcements by the government at 3:30pm are not coincidental and are deliberate attempts to jam the market into the close.

(Stocks were also buoyed by news that BP had stopped the gusher in the Gulf.  This news was released several minutes after the SEC announcement.  One might wonder about the coincidental timing of BP’s announcement. However, Running of the Bulls is willing to give BP the benefit of the doubt.  There is no company in the world more motivated to rush good news to the market right now than BP.)

Whether or not the machinations of the SEC will be effective remains to be seen.  But it is ridiculous that the government resorts to this type of manipulation.  If this is merely a temporary reprieve in a down-trending market, then the SEC’s timing is nothing more than a wealth transfer between market participants.

Or should I say, between market machines and algobots.

Comments

[SA]

I have been scouring blogs today searching for comments about today's last half hour market action and yours is the first that I have found and your comment is spot on. I totally agree that market was setting up for a significant (possibly 10+ points on the S&P) decline when it just went ballistic.

I think such manipulation, though extremely annoying, usually doesn't keep market from doing what it has to do. This was my conclusion from the May 6 flash crash and market movement on subsequent days.