The Most Critical Time Of Day For Bulls
Graham Summers
August 26, 2009
Watch the last 30 minutes…
Through this year and the last, the last 30 minutes of trading has been a critical point for manipulation. Countless times the market has shown signs of breaking below critical resistance points, only to have stocks rally sharply in the final 30 minutes of trading. Indeed, there were even several days in which stocks actually reversed losses to close at a gain all in the final 10 minutes.
This is not coincidence.
As I've noted countless times on these pages, this market is being manipulated… HEAVILY. And these last minute rallies have come at the hands of JP Morgan, Goldman Sachs, and other large Wall Street firms. I know personally of at least two instances in the last two weeks in which JP Morgan stepped in and bought 1,000 S&P 500 futures at critical points, pushing the market higher just when it looked about to break-down.
You can see this in the below chart of the S&P 500. Stocks staged late day rallies on August 6th, 10th, 11th, 13th, 14th, and 17th (that's only the last two weeks!) The most critical rallies came on the 10th and 11th. Without those, the S&P 500 clearly was heading for 980 in a very rapid fashion.
It's important to note that this late day manipulation can only last as long as there are equity bulls who believe in it. That is, buying a ton of futures only kicks off a rally in stocks if there are enough stock bulls who believe that someone in the futures market knows something they don't. Much like in poker, you can only run the table when you've got a patsy or two to pony up the cash.
And the stock market ran out of patsies last week.
The above chart shows the S&P 500's daily action in one-minute increments. As you can see, traders shot for late day rallies on both the 17th and the 18th (yesterday). Both days, they failed to get enough bulls to buy into the manipulation (stocks rolled over in the final minutes). They did manage to stage a major rally at the end of the week, thanks largely to options expiration and Bailout Ben pumping $46 billion into the system.
However, now with options expiration out the way… and in light of today's turnaround to the downside, I'd argue that:
- The bulls are out of steam.
- Reality is taking hold.
Stocks are SEVERELY overbought now. And yesterday's turn-around collapse looks to be a herald of things to come. I wouldn't be surprised to see the S&P500 back at 980 very shortly.
China's Shanghai Stock Index, certainly is forecasting it.
Virtually 95% of all the evidence of economic recovery has stemmed from China in one way or another. Whether it's the rise in price of commodities (China stockpiling), the global economy (the "China" growth miracle will lead us into a recovery), or even retail numbers (China producers lowering prices in an effort to move inventory), China is linked in one way or another to the "green shoots" nonsense.
Unfortunately for those of us living in reality, the view that China will bring about a new era of growth is a total fraud through and through. The Chinese government, unlike its US counterpart can FORCE China's financial industry to do anything it says. And China's government has been screaming "lend, lend, lend!!!"
Indeed, Chinese banks have lent out $1.1 trillion in the first half of 2009: an amount equal to one third of the country's GDP. Over the same time period, loan-deposit ratios at Chinese banks have only increased from 65% to 66%. Put another way, only the tiniest fraction of the money being lent out has actually gone into deposits.
So where has it gone?
Well, China's exports (about 40% of its economy) in July were down 23% Year-over-Year. China's industrial production is up, but only back to 2001-2002 levels: hardly a sign of major investment.
Meanwhile China property values are EXPLODING. According to Andy Xie formerly of Morgan Stanley, property in China now costs roughly the same per square meter as in the US. The only difference is that your average Chinese worker makes 1/7th as much money as your average US worker.
And then of course, there is the Chinese stock market which exploded higher starting with the Stimulus plan in November.
What I'm trying to say is that China's "boom" has almost entirely been the result of financial speculation. China's economy is not growing anywhere near what its "official" numbers claim. Instead, the boom in commodities and the Shanghai Stock Exchange have come from Chinese investors taking out loans and piling into the markets. There are stories of Chinese college graduates taking up day trading instead of looking for jobs.
Will China become the next economic super-power?
Probably in a decade or so.
Is China's economy stronger than the US's now?
They're certainly throwing a LOT more money around relative to GDP.
Can China transition from an export-focused economy to a standalone entity within a year by pumping hundreds of billions of dollars into its system?
ABSOLUTELY NO CHANCE WHAT-SO-EVER.
So what happens when China's credit bubble pops?
US stocks finally catch on two weeks later.
As you can see, the Shanghai Index (dotted line) rolled over in earnest at the beginning of August. They did a quick bounce last week, but look primed for more trouble in the near future.
Keep your eyes on the Shanghai Index. It lead the US markets up… it will lead them down as well. I've put together a FREE Special Report detailing THREE investments that will explode when stocks start to collapse. I call it Financial Crisis "Round Two" Survival Kit. These investments will not only protect your portfolio from the coming carnage, they'll also show you enormous profits: they returned 12%, 42%, and 153% last time stocks collapsed.
Swing by www.gainspainscapital.com/roundtwo.html to pick up your FREE copy!!
Good Investing!
Graham Summers
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