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Sunday, February 15, 2009

Biggest game of chicken in a century

The stock market has various level of "players". There is the basic person that blindly dumps cash into the market, where "professionals" move the money into investments on the behalf of the person. Then there are the shades of basic player to expert, with various strategies. At the professional level, there are myriads of companies and strategies that are done. However, there is ONE basic strategy above basic player through the highest levels of professional, and that is "stock chartists". A stock chartists reads the stock market "graphs" generated over time and theorizes the future moves based upon the graphs generated.

Personally, I don't believe in the graphing, to me its like palm reading. However, I pay close attention for chartists for one simple reason, its a religion. And like all religions, with enough believers, they can create their own reality or affect reality. So when chartists see a "Death cross" or other events, a movement starts that will carry the rest of the market. Hence, to me, chartists are self-fulfilling prophecy. But the really really smart money knows this, and will deliberately generate "false" chartists signals to capture money from the believers.

It is in a way, a den of thieves all strategizing how to fake out others while being on the right side of a trade themselves.

For the last week or so, the market has teetered on crossing a fatal line, that once crossed, will trigger an avalanche of selling........Or so say the chartists.

Enter, another strategy play, "stock options". This Saturday is stock options expiration. Stock options is where the true professionals play. Mere mortals play in stocks, but option traders are the high rollers of investing. With much less money, they can control and influence larger blocks of stocks.

Through the last year or so, I have witnessed outright collusion with the US Government to move the markets in an advantageous way to market makers close to stock market expiration. How you may ask? Release news that shifts the market violently in a direction. Using options, and advanced knowledge of the direction move, place very large bets to reap the trade.

I wish I had blogged all the events that occurred, to show a pattern of abuse. But I can recall one. On January 19th, 2008, options expired. On January 19-20th, very bad news was announced (I can't remember what). On January 21st, the market opened up much lower. I believe 600 DOW points down. Then the US Government announced it will save the world. (Paraphrasing). Various trading desks shut down preventing the common person to sell that day in computer glitches. The market by mid day recovered, and at end of day was up.

So, how did someone benefit? Well, market makers where able to settle trades using "much cheaper" stocks than the closing bell price on Friday January 18th, and pocket the difference. Since by EOD Monday, everything was back to normal, except the cash influx captured by those lucky few that morning.

This week is setting up to be the mother of all cash outs. Maybe it won't happen, but I'm mentally preparing for some serious game playing. It's possible for the market to break lows this week, or come close to it. Then, there will be "the" announcement, and it will be off to the races, either to the moon or all out collapse.

In any event, I'm avoiding doing anything. I believe it will be an up swing, its just too soon to let the S&P go to 400. There is much more money to be milked out of people if it can be dragged out before collapsing.

Monday the market is closed, Tuesday Obama administration is set to make announcements. Lets just hope the people who control big money play this game right, and it doesn't backfire and collapse.

I can tell you this, one of these games will not work according to plan, and that is when we will collapse down to S&P 400. I just don't think this options expiration is the time.

Holding onto the Gold miners, and not adding to oil until it hits 25 bucks a barrel or cracks above 48. Still keeping RJA and looking for other food plays.

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