This is a must watch if you haven't seen it before, then go back and read the last post.
Link to Cramer talking about manipulating the market
Thursday, August 16, 2012
Here's the post
The subject is market manipulation, it's here, it's been here since there was a market and it will always be here so best to understand it and make it work for you. I often remind members that above all, price is deceiving. Technical Analysis and the majority of retail traders who blindly follow it make it so easy for Institutional/Smart Money/Wall Street, etc to manipulate the market.
Jim Cramer of CNBC fame gave one of the most honest interviews I've ever seen from him and one of the most interesting views from the other side of the monitor. It was quite a while back on Wall Street Confidential with Aaron Task. I have featured the video here before, in fact, the last time this was the post...
And guess what, after searching for it, going to the bookmark I had, poof! The video is gone, I knew it would be because Cramer was a little too honest. Luckily someone thought the same and transcribed it on their site, here's the link, before going further, read this, especially the part about using options to manipulate the market.
I received an email today that was more of a comment than a question, it went like this (thanks for allowing me to share with the rest of the pack)...
"I follow a guy on Twitter who tracks unusual option activity. I meant to send you this yesterday afternoon when he posted the tweet below. Might explain some of today's action perhaps.
"Large Action in Financials ($XLF) with 80,000 September $16 calls and 165,000 October $16 calls"
Here are the October Calls, the $16s were $.13 yesterday or $13 a contract. At 165k contracts, $2,145,000, not even close to the amount Cramer was talking about and he didn't have a big fund.
Jim Cramer of CNBC fame gave one of the most honest interviews I've ever seen from him and one of the most interesting views from the other side of the monitor. It was quite a while back on Wall Street Confidential with Aaron Task. I have featured the video here before, in fact, the last time this was the post...
And guess what, after searching for it, going to the bookmark I had, poof! The video is gone, I knew it would be because Cramer was a little too honest. Luckily someone thought the same and transcribed it on their site, here's the link, before going further, read this, especially the part about using options to manipulate the market.
I received an email today that was more of a comment than a question, it went like this (thanks for allowing me to share with the rest of the pack)...
"I follow a guy on Twitter who tracks unusual option activity. I meant to send you this yesterday afternoon when he posted the tweet below. Might explain some of today's action perhaps.
"Large Action in Financials ($XLF) with 80,000 September $16 calls and 165,000 October $16 calls"
Now, if you read Cramer's interview, he specifically says,
"A lot of times, when I was short at my hedge fund and I was positioned short, meaning I needed it down, I would create a level of activity beforehand that could drive the futures. It doesn’t take much money. Or if I were long and I would want to make things a little bit rosy, I would go in and take a bunch of stocks and make sure that they’re higher, maybe commit $5 million in capital to do it, and I could affect it."
"What you’re seeing now is maybe – it probably is a bigger market now – maybe you need $10 million capital and knock the stuff down. But it’s a fun game and it’s a lucrative game. You can move it up and then fade it. That often creates a very negative feel. So let’s say you take a longer-term view intraday and you say, “Listen, I’m gonna boost the futures, and then when the real sellers comes in, when the real market comes in they’re gonna knock it down and it’s gonna create a negative view.”
That’s a strategy very worth doing when you’re evaluating on a day-to-day basis. I would encourage anyone who’s in a hedge fund to do it, because it’s legal."
" By the way, no one else in the world would ever admit that, but I don’t care. And I’m not gonna say it on TV."
" I could get a stock like RIMM for maybe – that might cost me $15-$20 million annually to knock RIMM down. But it would be fabulous because it would beleaguer all the moron longs who were also keying on Research in Motion."
When talking about how to knock AAPL down, after talking about spreading disinformation, Cramer talks about buying Puts, making it look like there's something negative someone knows reflected in that put buying, but it's really just to create an impression, it' a straw man position.
"By the way, ‘cause the stock at 84/85 - a little bit a capital you go buy some January 80 puts that makes it look like there’s gonna be something going on. So maybe give Morgan an order to buy 1,000 Jan 80 puts, and then you go position limit with …maybe you use a hack firm that doesn’t know what the heck its doing – maybe you go to UBS for puts."
He continues...
"But what’s important when you’re in that hedge fund mode is to not do a thing remotely truthful, because the truth is so against your view that it’s important to create a new truth to develop a fiction. The fiction is developed by almost anybody who’s down 2 percent, up 6 percent a year. You can’t take any chances. You can’t have the market up any more than it is if you’re up six, because starting Jan 2 you’ll have all your money come out."
You really have to read the entire interview to understand how this works.
So lets take a look at the positions in XLF put on in options considering the above...
Here's the September options chain for XLF, $16 Calls were $.04 yesterday or $4 a contract, at 80k contracts that's $320,000
Not much of an investment for a $500 million dollar fund.
Here are the October Calls, the $16s were $.13 yesterday or $13 a contract. At 165k contracts, $2,145,000, not even close to the amount Cramer was talking about and he didn't have a big fund.
XLF saw accumulation at 8/2 like the rest of the market...
If we are VERY conservative (knowing most retail won't buy a day like that), lets assume half of the day's volume was accumulated, at 63,439,600 shares traded, and assuming again VERY conservatively that the average price was $14.50, we have a position almost $459,937,100 long.
With 26,883,400 shares of XLF traded today, let's assume that on the breakout over $15 and with that call position that seems very large yesterday, half of the accumulated shares were sold today at an average price of $15.05 and the other half were sold the previous 9 days at an average price of $14.90;
We have 15,859,900 shares sold at an average $14.90 and 15,859,900 @ $15 on average today, that's 236,312,510 and 237,898,500 for $474,211,010 and a profit of $14,273,910. If it took an investment of $2.1 million to finish clearing out that position, it's still a decent profit on a very small move.
However it's never as easy as that, Wall Street uses off-setting hedges, short positions, derivative positions, sells at the highs, buys at the lows, they use much more sophisticated options strategies, I can almost guarantee those calls weren't the only trade made to make it look like something big was going on in financials.
The most important thing to remember comes from Cramer directly, "You never do a thing that is remotely truthful", you create a fiction. When Wall Street is buying and selling they are very quiet about it, they have to be now because there are HFT programs that just look for institutional orders to front-run and cost Wall Street a lot of money, so they certainly aren't going to go in the wide open and put on a big directional position like those calls without there being some deception to the whole game.
Lets revisit this soon and see how things worked out.
In any case, the post is worth reading just for the truth from Cramer, you won't get it often as he himself admits.
Don't miss the next post
I have an interesting post for you, keep your eyes open for it as I'm putting it together right now.
ES Update
I'll try to get some longer ES charts up.
FB Update-Position
FB's IPO lock up period ended today, this makes FB a bit interesting again. I am going to start an equity long position at 25% of a normal position and see where it goes from there, I'd prefer calls again for another nice ride like last time, but I wan to let it simmer down. Today's volume could be very useful and FB has done EXACTLY what I suspected it would do when some of us first entered some short term longs at the start of August, it has pulled back in to a base-like formation, which is exactly what I suspected.
Here's a "W" like base, the volume surges are in the perfect area to be accumulated with no one thinking anything but bad about this chart.
The 5 min chart in FB tells a little different story, the first divergence some of you trades although we knew it wouldn't be a big move up because the base was too small.
Take a look at the 15 min chart from our original long to the far left and the divergence now, that volume could be a major player in absorbing that supply, even if just for logistical reasons of needing to dump it at higher prices.
Remember the 60 min leading positive of the first long? Look at price relative to 3C at the first trade and this possible base.
This is what the 60 min chart looked like on our first long.
And now.
I think it's worth exploring at least on a spec. basis.
I think it's worth exploring at least on a spec. basis.
Limit Orders/Volume
Think about today for a minute, not good economic information on the whole, nothing out of Europe except decent market action and the Euro, the Bad news is good news effect doesn't seem to apply if you look at the QE sentiment indictor,GLD...
An easier way to view it is GLD's relative strength, not Wilder's Relative Strength (which measures one asset against itself), but just Relative Strength of GLD vs the SPX, it's pretty obvious the "Bad news is good news-QE hopes" are not behind this move. In fact looking at the move it seems very extreme, it's only a +.75% move which in normal markets is an average day that no one gets excited about, it's because the recent range market wide has been so dull, the last trading week before today in the SPY moved +0.24%, for all intents and purposes that is absolutely flat for a week, so a +.75% move seems huge.
In any case, not the point, the point...
It will be interesting to see where the stops line up, I'd vote for $142 s being obvious and the $141.30-ish level as well.
The Sell-off in to the close?
That's what I was thinking several posts ago.
They managed to get some volume in to this dwindling, record breaking volume-less market.
However on a very parabolic move, seemingly on no news and no catalyst. I never trust parabolic moves up or down, they just don't seem to end well and the last 30 mins has been the most parabolic going in to the closing hour when the big boys come out.
Here's the most recent intraday parabolic move.
Risk Asset Update
The high Yield Credit, Junk (JNK) on yesterday's sell-off
Euro intraday seemed to get this party started, it's definitely lost momentum. Over the course of history with FX legacy arbitrage, there's few times when the SPX and Euro or $USD don't revert to the mean, long term reversion to the mean is below.
Energy at major resistance, this is the pivot we are looking for, they're going to have to mke it scary though to get volume back in the game.
NYSE TICK chart
You've probably seen me post the TICK chart for several different reasons, 1 reason is it acts as a breadth indicator and can be used as a leading indicator intraday for reversals simply by drawing channels and seeing is there's a divergence between the market and the channels on the TICK chart which is the sum of all NYSE stocks ticking up minus those ticking down.
I've put the SPY on the chart in white for reference, note the uptrend channel in the TICK chart is broken and a new downtrend channel has formed.
Market Charts
I'd guess we are setting up for a sell-off in to the close
Quick Market Update
No more mushy signals, the divergences in the averages are very sharp now. I'll try to get some charts up soon, but I do want to look at the risk asset layout.
USO Update
Patience has paid off many times in the past, I think it will here too.
From the downtrend, in the yellow box we saw what Technical traders would consider a bearish consolidation/continuation pattern called a descending triangle. Some traders will short the price pattern, but many will wait for a break below the price pattern with expectations that a second leg down will start, roughly equal to the first leg down. However, THIS WAS A HEAD FAKE MOVE, as I often mention, 80% of all reversals see such a move just prior to the reversal and this happens on all timeframes. We could see this was a head fake move before it even broke down, I'll show you. The counter-trend rally retraced about 50% of the original move down on this chart, but volume is running dry. The recent 6-7 day range created an obvious resistance level, while the range itself only moved +0.03% over 6 days. The break above the range will bring some longs in on a break of resistance and open up USO a bit to some repositioning. Generally, in order to create income in trading, you (or they) have to have someone to trade against, everyone on the same side of the boat makes them no money and when volume starts running dry, it's time to shake things up.
This is the simplest chart of what happened above, a 4 hour chart reduces noise and smaller divergences and uncovers the larger trends. USO went negative at the top, saw downside confirmation (green arrow), then a head fake move at the triangle which is at the yellow box-*Note the accumulation in to the bearish price pattern and break below it, these shares were accumulated, there was mark up and trend confirmation and then they were distributed/shorted.
The 60 min chart is more detailed, here's the head fake bearish triangle break down in yellow with a positive divergence meaning those shorts providing supply by selling, were having their shares accumulated, this is a head fake move or false break. After a period of mark up to make money on the shares, they are distributed in to higher prices, the divergence is sharper on the 60 min chart.
The 30 min chart shows all the same themes at the same time, but gives additional details and is sharper as well.
After mark-up, here's the 15 min chart with distribution in to the top, USO breaks above some resistance areas bringing in longs or demand, which can be sold in to or shorted as 3C drops to a leading negative low.
So now to the short term charts for timing, I was waiting for this 1 min chart to go negative to fill out the position, you can see where it did to the right.
The 2 min chart also went negative providing confirmation of the 1 min chart and showing the divergence is stronger than just a small move on a 1 min chart.
The 3 min chart also went negative, the same reasons apply as the 2 min.
The 5 min chart never moved up to confirm.
The 3 min chart also went negative, the same reasons apply as the 2 min.
The 5 min chart never moved up to confirm.
I Think USO Time Is Here
I've been patiently waiting for this move in USO, I thin it's time now to fill out the equity short I've been waiting for which will bring the USO equity position to a full position, adding the final 1/3rd.
Market Update
ES making a new leading low
The theme is market correlation, nice price strength, almost ZERO underlying strength.
The Euro will probably be one of the key assets to watch today, at least it appears to be the catalyst, however still remains severely dislocated from the SPX.
