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Stock Market Funny Action Friday: What Happened?

Stock-Markets / Market Manipulation Feb 09, 2010 - 02:11 AM GMT

By: Graham_Summers

Stock-Markets

Best Financial Markets Analysis ArticleMany investors have written in asking me what happened on Friday. For those of you who weren’t watching the tape, stocks entered a free fall around 1PM Eastern Time. It looked like we were going to get another massive drop similar to the one that occurred at Thursday’s open.
 
However, suddenly at 2PM stocks began to stage a sharp reversal with virtually every major US index ramping over 1% in a matter of minutes. Having collapsed for days, stocks actually managed to close Friday at a gain.


There are a few explanations for this.

First and foremost, a number of rumors came out Friday afternoon concerning a potential Greece bailout either from the European Central Bank or the G7 Government meeting. Given the massive amount of moral hazard/ market props that have occurred since the Financial Crisis began in 2007, traders assumed Greece would be bailed out rather than default. Consequently, even rumors of a bailout were enough put a temporary floor under the market collapse.

Secondly, we need to consider the “Monday Effect.” As I’ve written about in previous essays, the market has begun a strange pattern of ramping sharply higher on Monday mornings. Traders are well aware of this and so are not willing to sit on their shorts over the weekend. After all, with 20 out of the last 22 Mondays featuring explosive opens, no one in his right mind wants to have the market blow up in his face and wipe out his gains of the last week.

Thus, once the market bottomed and began to rally, the shorts began to cover, pushing stocks higher. You can see how short covering really began to dominate trading around 3PM when the market went vertical.

Finally, we have to address the efforts of JP Morgan. Tyler over at ZeroHedge noted that JP Morgan’s ETF Desk bought a TON of S&P 500 ETFs (SPY) starting around noon. To see just how much SPY JP Morgan was brokering (either buying for themselves or one of their clients) look at the below chart provided courtesy of the folks at Zerohedge.

There you have it. Friday’s action was largely based on rumors and the shorts covering so as to lock in their gains rather than leave them running over the weekend. Throw in some heavy buying from JP Morgan and you’ve got the recipe for a massive reversal.

I’ll address where stocks are headed from a technical standpoint in tomorrow’s essay. Until then…

Good Investing!

Graham Summers

http://gainspainscapital.com

PS. I’ve put together a FREE Special Report detailing THREE investments that will explode when stocks start to collapse again. I call it Financial Crisis “Round Two” Survival Kit. These investments will not only help to protect your portfolio from the coming carnage, they’ll can also show you enormous profits.

Swing by www.gainspainscapital.com/roundtwo.html to pick up a FREE copy today!

Graham Summers: Graham is Senior Market Strategist at OmniSans Research. He is co-editor of Gain, Pains, and Capital, OmniSans Research’s FREE daily e-letter covering the equity, commodity, currency, and real estate markets. 

Graham also writes Private Wealth Advisory, a monthly investment advisory focusing on the most lucrative investment opportunities the financial markets have to offer. Graham understands the big picture from both a macro-economic and capital in/outflow perspective. He translates his understanding into finding trends and undervalued investment opportunities months before the markets catch on: the Private Wealth Advisory portfolio has outperformed the S&P 500 three of the last five years, including a 7% return in 2008 vs. a 37% loss for the S&P 500.

Previously, Graham worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He’s lived and performed research in Europe, Asia, the Middle East, and the United States.

    © 2010 Copyright Graham Summers - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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