AN IMPORTANT LESSON

Last week on March 24th, the following was "leaked" to Zero Hedge via a European trading desk. This is what the market looked like on the close that day.

You may recall, this was Thursday of last week. My first post in the morning on Thursday outlined what I expected to see in the market for the day and Friday, at which time I believed distribution would be complete for this bounce. After hours that dat, RIMM posted earnings that had the stock decimated in after hours. There were still many stocks and important indices that needed to break price patterns and resistance, "The by now, proverbial false breakout" .

So here was the release: 

"Something rather disturbing from a European trading desk...

TODAY TWO LARGE MACRO FUNDS OVER HERE HAVE GONE WILDLY LONG S&P. NOT LONG. WE TALKING 250% NET LONG. IT LOOKS LIKE CONCERTED ACTION ON GDP DGRADES FROM GS AND BOFA ARE THE LETTER DELIVERED TO BEN ON QE3. HUGE DIRECTIONAL BET WITH NEW CAPITAL PUT AT WORK. MOST LIKELY THE TWO INSTITUTIONS ARE COORDINATING ACTION WITH OFFICES IN CONNECTICUT. CHECK INFLOWS OF BLUE CHIP HEDGE FUNDS IN JAN FEB. APPLY 2.5 LEVERAGE. WE ARE TALKING ABOUT SOME 40-60BN PUT AT WORK PRIMARILY ON EMINIS AT THE MOMENT. WHETHER SOME EXTERNAL FORCE WILL LEAVE THEM HIGH AND DRY I DON'T KNOW. BUT IF ANYTHING SEEMED TO BE AT LEAST NOT TOO IRRATIONAL UP TO NOW, IN THIS THIRD WAVE, BE READY FOR REAL ROCK AND ROLL. "

Emotionally I was a bit worried about it being I was calling for the end of the bounce, rationally I knew this is the exact kind of thing Wall Street does to juice the market that extra notch when they need to make a target and things look to be slipping.

As this was releases after hours, the ES/S&P trade went nuts with a lot of volume and quite a move up. This I knew for sure was retail traders, pros don't accumulate in the thin after hours market, they don't accumulate into rapidly rising prices and they don't make it obvious to traders. What was going on was clear, even though there was still that conflict between emotion and rational thought. Friday was up as expected per my Thursday morning post. And in fact Friday seems to have been the top as yesterday we closed lower with a lot of selling into the close which continued this morning most likely all retail action reacting to yesterdays late afternoon trade.

By now I hope the point is sinking in. Wall Street hides their hand and when something like tis is revealed, it's done so for a reason. This time many people who chased the S&P in after hours got left holding the bag. It's even less of a surprise that it happened right before quarter's end.

The point really is that these kinds of manipulations have to be looked at rationally. Price action shows up in one place more then any other source and that's on a chart. A chart is objective, it's transactions that are complete, not rumors. I imagine this won't be the last time we see this kind of nonsense in the market so next time you see something out of the ordinary like this, don't be too quick to swallow the bait. It's the primary reason I don't watch CNBC, everyone there is selling a story. Most of all, react rationally with hard information that you have at your disposal.

I'll most likely put out a video later today covering this in greater depth, but I hope the rumor, the false breakouts, the window dressing and all of that reach you and help you understand what the market truly is.  It's not a level playing field, there are few if any friends and a good trader is always skeptical if not downright paranoid about what they hear.