19 October 2017

Stocks and Precious Metals Charts - All Is Well -1987 and Its Consequences

"On a side bar. remember a couple of years ago, when I went on CNBC to talk to them about things that were happening in the markets in the afterhours that didn't make sense, and looked like an 'outside force' was moving them?   And they laughed at me, and told me to take my theory to Hollywood, and see if they would make a movie of it!  And then a month or so later, a guy came out and proved my theory?  Well. I have to believe that the rise of Gold and Silver, the rise of Treasury yields, and Oil, all being reversed on a dime, smells like PPT. it walks like PPT. and it talks like PPT."

Chuck Butler, Everbank World Markets

“Instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying market averages in the futures market, thereby stabilizing the market as a whole.”

Robert Heller, Federal Reserve Board

"There is no trap so deadly as the trap you set for yourself.”

Raymond Chandler, The Long Goodbye

Today is the 30th anniversary of Black Monday, the crash of 1987.  I remember it very well.

As you may not recall, on Tuesday following the crash, with the futures market indicating a significantly lower open, Alan Greenspan and the Fed came in buying SP 500 futures in order to turn the markets around. And it worked.   And it continued, with the Fed supporting the equity markets with jawboning, persuasion, and occasionally direct intervention, so that by the end of the year all was well with the markets.

And most will forget that Mr. Greenspan's expansion of the role of the Exchange Stabilization Fund for currency markets to manipulate equity and commodity markets was formalized in the following year. On the advice of his financial advisors, President Reagan formed The Working Group on Financial Markets (colloquially referred to as the Plunge Protection Team) was created by Executive Order 12631, signed on March 18, 1988.

 And thus came the era of bubble-nomics.

Stocks in the US opened significantly lower after an overnight sell off overseas.

The cause of that selling was the news out of Taiwan that Apple has significantly reduced orders to its suppliers for the iPhone 8.

Bearing in mind that there is an option expiration on Friday, and more importantly that the stock market has become a proxy for the economy in general, steady buying was applied almost from the opening bell, especially to the SP 500 futures.

And see that the SP and the Dow managed to finish in the green, while the tech heavy NDX finished in the red.

This is classic bubble top action.

Have a pleasant evening.