Written by Graham Summers
I’m about to share with you the basic outlines for this market rally started March 2009. In no way shape or form am I providing official recommendations or investment advice in this post. I am merely pointing out the obvious trends that this rally has followed.
The first, most obvious trend is the Manic Mondays trend. I’ve commented on the weekly Monday ramp job that has been occurring in the markets for months now. However, Dr. Robert McHugh as done extensive analysis on this trend, showing that for the 43 weeks ended Friday January 8, 2010, stocks have rallied on 30 out of the 43 Mondays.
Even more significantly, these Monday ramp jobs have contributed the bulk of the market rally’s gains since March 2009. McHugh comments that all told, 80% of the gains stocks have posted since March 2009 have come on Mondays.
The significance of this trend cannot be overstated. Someone (or several someones) has been pushing S&P 500 futures up virtually every weekend since this rally began. Since most Wall Street traders take their cues from the overnight futures market, this has resulted in massive gap ups on most Monday mornings.
By the way, the “Monday effect” works even when the market is closed on Monday as yesterday’s action attested. All you need is a weekend and light futures trading to produce a Manic Monday.
The second trend that has dominated this market since the March 2009 bottom is the Bernanke Options Expiration juicing. In simple terms Ben Bernanke has shown a REAL preference for pumping money into the financial system on the exact week when options are expiring. I’ve bolded the expiration weeks in the table below. You’ll notice the LARGEST Fed moves have ALL occurred on expiration weeks.
|December 31 2009||-$1 billion|
|December 28 2009||+$35 million|
|December 17 2009||+$49 billion|
|December 10 2009||-$17 billion|
|December 3 2009||-$2 billion|
|November 27 2009||-$2 billion|
|November 19 2009||+$73 billion|
|November 12 2009||-$30 billion|
|November 5 2009||+$3 billion|
|October 29 2009||-$39 billion|
|October 22 2009||+$8 billion|
|October 15 2009||+$54 billion|
|October 8 2009||-$3 billion|
|October 1 2009||-$17 billion|
|September 24 2009||+$18 billion|
|September 17 2009||+$51 billion|
|September 10 2009||+$4 billion|
|September 3 2009||+$8 billion|
|August 27 2009||+$14 billion|
|August 20 2009||+$46 billion|
|August 13 2009||+$25 billion|
|August 6 2009||-$11 billion|
|July 30 2009||-$38 billion|
|July 23 2009||-$33 billion|
|July 16 2009||+$80 billion|
You’ll note that on non-expiration weeks, the largest Fed move was a $38 billion capital infusion. However, ON expiration weeks the SMALLEST move is $46 billion. And the largest expiration pump is a whopping $80 billion, which interestingly enough occurred during a time in which stocks were starting to break down. Interestingly enough, the SECOND largest Fed pump occurred in November another time in which stocks were breaking down.
Options expiration week historically is a time of GREAT market manipulation as Wall Street traders try to push their positions into the black so they can close them out at a profit. For the Fed to be making its biggest infusions of capital on ALL of these dates is “a bit odd” to say the least. The fact it has occurred like clockwork for months makes this trend almost as regular as the Manic Monday Ramp Job.
The final trend that has dominated this market is cousin to the Manic Monday Ramp Job. It is the Night Session Ramp Job. I’ve already mentioned this trend in previous essays so I’ll keep today’s comments short. The simple fact is that from September 13, 2009 until year-end, ALL of the stock market’s gains occurred in the over-night futures session from 4:00 ET to 9:30 AM ET.
Tyler of ZeroHedge was the first to identify this trend and created the following graphic. It sums up this trend perfectly.
As you can see, for the last three months of 2009, the market basically traded sideways during the normal day session (9:30ET to 4PM ET). In contrast, the after hours futures market (4PM ET to 9:30AM ET) accounted for ALL stock gains.
So there you have it, the three most dominant trends of this market rally. None of them are pretty. None of them involve fundamentals. And ALL of them are directly related to the Fed’s liquidity pump.