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54anickel Donating Member (1000+ posts) Send PM | Profile | Ignore Mon May-10-04 10:58 AM
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49. Market manipulation and its effects

Now to show you what a manipulated market looks like, pick out a chart of any actively traded stock or commodity -- it can be IBM, Barrick Gold, corn futures, or whatever. I'm not trying to single out any one stock or commodity because any one of them worth trading is being manipulated at the present time. This is not to cast aspersion on these stocks or commodities; indeed, the presence of organized manipulation is actually desirable up to a point. You see, the whole cycle of bull market followed by bear market is nothing but a continuously repeating pattern of manipulation. Bull markets in stocks and commodities happen because shrewd and well-monied groups of insiders decide that a certain asset (say for instance shares of XYZ Corp.) are depressed and have declined too low. Moreover, this coterie decides that XYZ is worth accumulating at the current low prices because the outlook for this company is promising and the group believes that XYZ shares can sell for much higher prices at some point in the future. So an attempt at absorbing all the excess shares of XYZ begins and the campaign of market manipulation is underway. After a long period of quietly picking up shares of XYZ, a new bull market campaign commences with the insiders advertising XYZ to the general public in various ways, which causes the public to demand shares of XYZ. A bidding war ensues with the public grabbing the bait laid forth by the manipulators and a new uptrend in the price of XYZ gets underway. Eventually, the shares of XYZ reach unsustainable levels and by that time the manipulators have long since sold all their shares to the public. So a bear market cycle follows and XYZ declines in price again. That, in a nutshell, is the cycle of manipulation.

Would the price of XYZ shares ever start a sustained uptrend and make higher highs without the presence of organized market operations (read manipulation)? Likely not. It takes organization from behind the scenes by professional manipulators to build bull markets, which in turn give way to bear markets - these things could never happen if trading in stocks and commodities was left to the unorganized public alone. So manipulation, far from being undesirable, is actually a necessary element to the smooth functioning of the financial markets. Without manipulation, there could be no following of the trends (since there would be no trends). Moving averages wouldn't work since price movement would be extremely erratic (see the above chart example). Chart patterns would be unreadable since by definition there would be no recognizable price patterns. Even fundamentals would be of little use if none of the well-heeled, behind-the-scenes manipulators felt that a given asset wasn't worth operating in.

Liquid markets that are under the influence of organized manipulation (which would include virtually all tradeable commodities and most listed stocks) have what is known as "market makers." Every stock of a well-capitalized company whose shares are heavily traded by the public employs someone to make sure the market for its shares is in relatively good working order. That means that whenever things look shaky this paid professional will step in and support the market at critical price levels to prevent an all-out break in prices. Or, to give another example, when an accumulation campaign is underway near the bottom of a bear market, this professional will make sure that no undue attention will be attracted to the stock of said company (in order to keep the general public away from the stock until the appointed time). This might properly be said to be another form of manipulation, but a very necessary one from the standpoint of the company and of the stock market as a whole. After all, if the public was allowed to madly rush into the market of any given stock at the same time, it would create a huge spike in the share price that would quickly be followed by a completely retracement right back to where the price was before the public entered the fray. (We've all seen this happen time and again with the penny junior mining stocks in years past when there was no professional support for a given stock. A "hot tip" from the Internet would cause thousands of traders to all buy the said stock at the same time, resulting in a massive rally in one or two days, which inevitably failed and left the stock right back where it started. This is what happens when there is no organized manipulation).

(Note: For further reading on the subject of the presence and desirability of manipulation in the stock market I suggest reading the classic 1933 work "The Business of Trading in Stocks" by John Durand and A.T. Miller (Fraser Publishing, Burlington, VT). The authors devote two in-depth chapters to the discussion of manipulation and describe in detail a complete manipulation campaign from start to finish).

Now I realize there is another form of manipulation which is particularly odious to even well-meaning market observers, which is mistakenly called "manipulation" by many. Actually, the correct term to use for this form of market operation would be "intervention." This is typically carried out by large entities such as the government. For instance, many traders speak of "manipulation of interest rates" or the manipulation of the dollar by the U.S. government. What they really mean is that at certain times (or perhaps at all times) there is an ongoing effort by the feds at keeping the value of the dollar low or high relative to other currencies. Or in the case of interest rates, that there is an active attempt by the Fed at keeping rates extremely low in order to keep the economy stable. Be this as it may, does the presence of the Federal Reserve or the Treasury Department mean that we have no way of trading the markets without always coming out on the losing end? Does government manipulation of the markets render price patterns meaningless and technical analysis of no value?


There are limits to human intervention in the natural realm and this applies especially to the commodities market. That's the lesson of history with regard to manipulation. True, manipulation will always exist as long as there are stocks and commodities to trade. To a degree, manipulation is even desirable. But even when taken to undesirable extremes, the natural forces of supply and demand ultimately keep the manipulators in check.

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  -STOCK MARKET WATCH, Monday 10 May ozymandius  May-10-04 06:43 AM   #0 
  - The spin for today is  Spentastic   May-10-04 06:50 AM   #1 
  - Yup, the economy  dusty64   May-10-04 06:52 AM   #2 
  - "This week"???  Frodo   May-10-04 08:36 AM   #11 
     - Or maybe "the first hour"??  Frodo   May-10-04 09:37 AM   #28 
        - looks like the psych barrier  salin   May-10-04 10:08 AM   #38 
  - It doesn't look like money will be flowing into the US markets.  ozymandius   May-10-04 06:54 AM   #3 
  - WrapUp by Tim W. Wood  ozymandius   May-10-04 06:57 AM   #4 
  - Storm Watch Update from Jim Puplava - ILLUSIONS  ozymandius   May-10-04 07:13 AM   #5 
  - I won't be around much today.  ozymandius   May-10-04 07:21 AM   #6 
  - Monday Moanin' Blues  JNelson6563   May-10-04 07:34 AM   #7 
  - daily dollar watch  UpInArms   May-10-04 07:53 AM   #8 
  - Dollar is up as the world wishes to get in on our prison business?  izzie   May-10-04 08:11 AM   #9 
  - "not consistent with a long rising trend in the dollar" - The missing fact  Frodo   May-10-04 08:44 AM   #13 
  - use of "out of context" quote, Frodo :)  UpInArms   May-10-04 08:54 AM   #15 
     - Of COURSE it was out of context,  Frodo   May-10-04 09:03 AM   #16 
        - looking at the US in isolation?  UpInArms   May-10-04 09:14 AM   #19 
           - "Isolation" in this case doesn't mean we "isolate ourselves"  Frodo   May-10-04 09:21 AM   #22 
              - I understand that you have  UpInArms   May-10-04 09:26 AM   # 
                 - Ahh. No thanks.  Frodo   May-10-04 09:36 AM   #27 
                    - I absolutely agree with Frodo....  54anickel   May-10-04 09:43 AM   #30 
                       - Seems reasonable.  Frodo   May-10-04 09:50 AM   #32 
  - Interesting take on the US$ - 'Worthless Dollar' Could Surge  54anickel   May-10-04 09:07 AM   #17 
  - Sooo. The Dollar's rise is a "Dead Cat Bounce"??  Frodo   May-10-04 09:57 AM   #34 
     - Deflation - I thought the numerous posts I made late last week made  54anickel   May-10-04 10:29 AM   #44 
     - This is the point I find so funny.  Frodo   May-10-04 10:54 AM   #48 
        - High gas prices are not inflation - correct. I think most here agree  54anickel   May-10-04 12:10 PM   #56 
     - Selling on a dead cat bounce and making money -  54anickel   May-10-04 10:44 AM   #46 
  - Gold at 6-and-a-half month low  54anickel   May-10-04 09:58 AM   #35 
     - And right about where it was mid-May 2003.  Frodo   May-10-04 10:08 AM   #37 
        - Touche! On the other hand, if you "invested" in the stock market  54anickel   May-10-04 12:36 PM   #57 
           - Well....  Frodo   May-10-04 01:06 PM   #63 
              - Much in the same way a savings deposit return is viewed in relation to  54anickel   May-10-04 01:25 PM   #64 
                 - US Dollar savings return vs. US inflation rate = valid  Frodo   May-10-04 01:55 PM   #68 
  - Market open - numbers at 9:32 EST  UpInArms   May-10-04 08:34 AM   #10 
  - "Market open - numbers at 8:32 EST"  ZR2   May-10-04 08:40 AM   #12 
     - sorry -  UpInArms   May-10-04 08:49 AM   #14 
  - Market numbers at 10:10 EST  UpInArms   May-10-04 09:12 AM   #18 
  - now under 10,000 at 10:18 EST  UpInArms   May-10-04 09:20 AM   #21 
  - Damn, knew I should have hit refresh! Look at the adv/dec numbers!  54anickel   May-10-04 09:23 AM   #25 
     - "Bagain hunters" right on time, trying to get back to 10K.  54anickel   May-10-04 09:26 AM   #26 
        - Just looking at the graphs of all three...  punpirate   May-10-04 09:37 AM   #29 
  - 10:17 and Dow 2.22 from hitting 10K  54anickel   May-10-04 09:22 AM   #23 
  - Slowly Unravelling!  54anickel   May-10-04 09:19 AM   #20 
  - The DOW just dipped below 10,000  deseo   May-10-04 09:22 AM   #24 
  - Here's a scary thought -  54anickel   May-10-04 09:47 AM   #31 
  - 10:50 update  54anickel   May-10-04 09:52 AM   #33 
  - I need to get my eyes checked. Did that say below 10,000 ?  nolabels   May-10-04 10:23 AM   #42 
  - Lemme get this straight  TrogL   May-10-04 10:06 AM   #36 
  - The last time I was here  jamesinca   May-10-04 10:15 AM   #39 
  - France says EU subsidy offer exceeds commission mandate  54anickel   May-10-04 10:16 AM   #40 
  - FOREX-Dollar powers higher vs yen, high yielders  54anickel   May-10-04 10:22 AM   #41 
  - DOW 11:26:46 AM 9,954.25 -163.09  spotbird   May-10-04 10:28 AM   #43 
  - DOW 11:34:50 AM 9,937.57 -179.77  spotbird   May-10-04 10:35 AM   #45 
  - Have to see what the "bargain hunters" can pull off over the lunch hour.  54anickel   May-10-04 10:46 AM   #47 
     - Lunch Buying Opportunties at 12:35 EST  UpInArms   May-10-04 11:38 AM   #52 
        - Check out the 12:30 blather -  54anickel   May-10-04 11:59 AM   #54 
           - We have "buying opportunities"!  UpInArms   May-10-04 12:06 PM   #55 
  - Market manipulation and its effects  54anickel   May-10-04 10:58 AM   #49 
  - Uh-oh. Piehole alert. Shrub on the tellie now. n/t  54anickel   May-10-04 11:01 AM   #50 
  - U.S. stocks tumble to year's lows on rate fears, Iraq  54anickel   May-10-04 11:25 AM   #51 
  - "STOCK MARKET WATCH, Monday 10 May"  dubyaD40web   May-10-04 11:43 AM   #53 
  - How many diehard bulls and Bushites will throw themselves on their pens...  Merlin   May-10-04 12:41 PM   #58 
  - 1:41 update - Bargain hunters have "temporarily" left the building  54anickel   May-10-04 12:43 PM   #59 
  - Advances & Declines  54anickel   May-10-04 12:48 PM   #60 
  - Will the news be dropped below 10,000 today?  nolabels   May-10-04 12:55 PM   #61 
  - hush up  Doosh   May-10-04 01:00 PM   #62 
  - UPDATE 1-Oil shares fall on Saudi call for more OPEC output  54anickel   May-10-04 01:36 PM   #65 
  - 2:38 numbers and blather  54anickel   May-10-04 01:40 PM   #66 
  - Isn't this the strangest gold chart? Seems all "roads" seem to  54anickel   May-10-04 01:44 PM   #67 
  - You can't see that .10 gap???  Frodo   May-10-04 02:08 PM   #69 
  - DOW 3:31:02 PM 9,949.99 -167.35 n/t  spotbird   May-10-04 02:31 PM   #70 
  - 3:33 update  54anickel   May-10-04 02:35 PM   #71 
  - Euro shares fall on oil prices  54anickel   May-10-04 02:39 PM   #72 
  - Stocks on Way to Finishing Session With Steep Loses  54anickel   May-10-04 02:45 PM   #73 
  - The beautiful balloon.  RUMMYisFROSTED   May-10-04 02:49 PM   #74 
     - HA! I prefer the old nursery rhyme....  54anickel   May-10-04 02:59 PM   #78 
  - Emerging markets fears widen  54anickel   May-10-04 02:51 PM   #75 
  - Memory check here.........  ewagner   May-10-04 03:21 PM   #81 
     - You're asking for a memory check by someone who readily suffers  54anickel   May-10-04 05:03 PM   #82 
  - UPDATE 1-U.S. Treasury's Snow-no worry on inflation, rates  54anickel   May-10-04 02:53 PM   #76 
  - More from Snow....  54anickel   May-10-04 03:04 PM   #79 
  - Help! AHHHHH! Down down down down down  Chicago Democrat   May-10-04 02:57 PM   #77 
  - The Cassandras and the Optimists  54anickel   May-10-04 03:16 PM   #80 
  - Closing numbers & blather  54anickel   May-10-04 05:15 PM   #83 
  - Maybe foreign stockholders got wind of the rumsfeld praising by *  loudsue   May-10-04 06:27 PM   #84 
  - That would be my take on it also  nolabels   May-10-04 09:27 PM   #87 
  - Well it was a bloody day  JNelson6563   May-10-04 06:35 PM   #85 
     - Ahhh, thanks Julie. I'm blushing. Hey the futures look pretty rosy  54anickel   May-10-04 08:43 PM   #86 
  - I would be found in dereliction of my bearish posting duties if I let this  54anickel   May-10-04 09:45 PM   #88 

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