Big Money Exit

Many people are confused as to the reason why the markets are falling day after day without any real relief. Why are the declines in the market so orderly and smooth? Why hasn't there been a crash, which in theory would mean that there might be an actual bottom?

The reason might be as simple as a strange rule that was set up as a result of the stock market crash in 1987. The rule know as the "circuit breaker rule" which says that if the stock market was to fall by 10% before 2pm EST the stock exchange would be closed for one hour. If the stock market was to fall by 10% after 2pm but before 3:3opm EST, then the market would be closed for 30 minutes. A similar rule exists if the stock market were to fall by 20% before a specified time.

So you see, if the market were to fall by 10% then there would be an outright panic in the stock market. The big institutions don't want the public to see a halt in the market at a time when the public already didn't want the bailout bill to begin with. Imagine what would happen to the markets if the average mutual fund investor said, "forget it, once the market reopens I'm outta here."

The solution to this problem is to program the big institution computers to avoid the selling if the market gets within 2.5% of a 10% down day. If you look at the stock market movement at the end of the day today, you'll see a concerted effort by the big money to conceal their effort to get out without disrupting the "orderly" nature of the overall decline.

Essentially what the "circuit breaker rule" has done is to provide every incentive by the institutions to make the market not hit the 10% decline which would halt the market and spark a panic. Since the Big Money has all the tools at their disposals to offset a true panic we get declines in the 3% to 7% range. It was quoted on Fox Business Network that of the approximately 2 billion shares traded today 4 million took place after the New York Stock Exchange closed bringing the index down 100 points after the official close of the day.

Clearly this is an effort by the Big Money players to get their money out while not inspiring a panic and at the same time getting the taxpayer to pay for the reckless mismanagement of our money in the Big Money institutions. This is a truly sad day for capitalism and the free markets. Touc.

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The Battle Lines May Have Been Drawn

The above chart shows what the Dow Industrials have done since hitting the 9525.32 level. Yesterday, the Dow attempted to go above the 9525.32 level and didn't succeed...so far. I don't think many traders or investors are intentionally targeting this level. However, it appears as though there is a battle for control of this price level on the index. What are the implications of this "battle line?" My guess is that we'll see this level revisited after falling to a extreme (albeit temporary) low or high in the market. At which point the index would wander around this level for what would seem like a long period of time (3 weeks to 4 months.)

Note:

On the right hand column please take a look at the Dow Yield Watch indicator. This indicator follows the current yield of the Dow Jones Industrial Average and places it in the context of the historical yields of the index. Traditionally, whenever the Dow had a yield of 6% the index would start a new bull market towards a yield of 3%. Likewise, when yielding 3% the Dow would embark on a new bear market towards a yield of 6%.

At the current yield of 3.50%, the Dow is slightly overvalued and, if continuing on its trend, is headed to the undervalued level of 6%. To put this concept into perspective, if the Dow were yielding 4% then the index would be at the 8,107.75 level. Touc.

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Questions or Comments? Email our team. Thanks.