Bill Cara: So what happened today, people asked?, Thurs., June 8, 2006, 11:39 PM

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June 8, 2006

So what happened today, people asked?, Thurs., June 8, 2006, 11:39 PM

Today was an amazing day in the capital market. My mailbox is filled tonight with traders asking simply, what happened?

First of all, what exactly did happen? Let's look at the Dow versus the Treasury bonds. Aha, a sell-off in bonds at the precise same moment there was lift-off in the stocks.

Before I say what I think went down behind the scenes, let me say that I believe there is too much skepticism in the air. Make that cynicism, which is not ok. I think it's quite healthy to be skeptical, but not cynical.

But when a few readers send me notes that they think the terror leader Abu Musab al-Zarqawi was killed some time ago and the announcement was timed to help the stock market, I had to stop and think: has our distrust and sarcasm gone too far? Have we gone from being merely doubtful to flat-out scornful for anything that is being reported today?

What happened today in my view was that, at 5 minutes to 12 noon, a programmed computer trading system issued instructions to sell bonds and buy stocks. An hour later there was a reverse order and five minutes later the order was again to sell bonds and buy stocks.

The dollars were huge, obviously in the billions.

Do I think this was the Fed this time? No.

Nor do I think it was any foreign central bank. But let's leave my reasons for thinking that way out of it for now other than to opine that the Fed would have been buying bonds, leaving the banks enough new funds to be buying stocks. And foreign banks would have been buying not trashing their own stocks today. That did not happen.

Do I think this trade was put on by the sell side bankers, mutual funds and so forth? No, because it was not accompanied with any spin, any economic data that was grist for the mill. That is their modus operandi.

Was this the public deciding at the same precise time to sell bonds and buy stocks? Not without one heck of a cheerleader, and I didn't see Jim Cramer throwing any chairs against the wall at 11:55am, did you?

So who could have orchestrated this trade? It wasn't likely T. Boone Pickens and the Texas oil men. No, their oil stocks didn't have lift off until 5, 10 and 15 minutes later.

What I always do at times like this then is to look down the Dow 30 minute-by-minute charts, and zero in on those 30 stocks. The answer is ALWAYS there.

So at 3 to 5 minutes to 12 noon, which Dow stocks rocketed at the same moment and what is the correlation? Lets start the list at Investertech. You can use any list.

AA? ;No, 6 min later
AXP? ;Yes, for sure
BA? ;No, 3 min later
CAT? ...No, 6 min later
MSFT, ;No, 30 min later
KO? ;Absolutely
DIS? ;No, 35 min later
DD? ;Yes, but only modestly so
PFE? ;No, not for 90 min
HON? ; Yes.

Now for these first ten, does anything here to this point stick out, i.e., correlate?

Hmmm. World's second richest man, son of a stockbroker who knows a thing or two about trading, and who just happens to have $45 b-i-l-l-i-o-n USD sitting in his cash register, for one. Doesn't he own AXP and KO, and a whole lot of GE that has made overtures to HON in the past?

So when I quickly looked at the Buffett portfolio, did I see that same lift-off in WFC (Wells Fargo), PG (Proctor & Gamble), MCO (Moody's), AIG (American International), AMP (Ameriprise Financial), and (MTB) M&T Bank?

And you know? Bingo, bingo, bingo, bingo, bingo and bingo plus AXP (American Express) and KO (Coca-Cola). Eight bingos. The whole enchilada; poultry, meat, vegetables served hot with a spicy sauce. Is that take-out or are you eating here?

Could this be somebody else movin and shakin the market today? I don't think so.

Could be wrong. Could be huntin the wrong dog.

I don't think so. I think I know what happened today.

Then again, I've always had this thing about Warren Buffett.

Posted by Posted by Bill Cara on June 8, 2006 11:39:03 PM | Category: Cara Today in the Market

Discourse

Wow. I did not know that stock trading include this kind of detective work. Let see. What if I was Warren and try to hide my actions? Could I delay purchases for some of the stocks in the portfolio...? Well, my purchases will move stock market up. Because other stocks will follow the stocks that I am buying, delay is no good. The most efficient and profitable way is indeed to start buying everything at the same time. Hiding my purchases would cost me.

Posted by: biochemist at June 9, 2006 12:21 AM [link]

http://finance.yahoo.com/q?s=usg Same thing with the Gypsie 1DAY at noon
But not the BUD

Posted by: Jason22 at June 9, 2006 12:29 AM [link]

I'm wondering if we're still expecting to see significant weakness in the CPI numbers next week that would signal a pause by the Fed in rate hikes on June 29. Not that the fed HAS to pause, since they're known to overshoot, but I mean, is it likely that the inflation numbers will have grown from May's CPI?

I'm perhaps more overweight in gold and silver than I should be, and a Fed pause will likely send these metals higher through July and August until the next Fed meeting right? And if we see CPI numbers are too high, should I be looking to exit my positions expecting a further (significant) fall in these metals?

Posted by: Fazeli at June 9, 2006 1:18 AM [link]

The sell-off/lift-off that you describe is not uniform for all the stocks that you cite. ï¿¼Look at PG which popped at the open and by 10:15 AM was at its peak for the day. It lost about half of it's gain by the next hour and then started slowly back up just before 12 noon. Also WFC was up at the start and continued to rise during the day with no noon lift-off. What is happening here and can this one man really have such an influence on the markets? Is he manipulating gold also?

Posted by: DRdan at June 9, 2006 2:02 AM [link]

Bill,
As usual you leave me speechless and thinking outside of the box where I tend to imprison myself. You are the man!!!!

Posted by: cb at June 9, 2006 2:39 AM [link]

A Wall Street Journal article states that, "Steep early losses triggered trading collars on the New York Stock Exchange, which may have helped stem the slide. The collars, created after the 1987 stock-market crash, limit certain fast program trades. They were activated at 11.31 a.m. EDT and removed at 3:10 p.m., a spokesman for the NYSE said." I never heard of these and did a search, finding the following information:

Program Trading "Collars"
A collar on program trading firms instituted by the NYSE is most commonly referred to on CNBC as "curbs in". The NYSE applies program trading curbs whenever the NYSE Composite Index (NYA) moves 160 points higher, or 160 points lower than the previous day's closing price.

This NYSE restriction on program trades stays in place until the NYA returns to within 80 points of the previous day's closing price; or, until the end of the trading day at 3:00 CT. The restrictions will be re-imposed each time the NYA advances or declines 150 points. NYSE Trading Curbs apply only to our firm's (and other program trading firm's) computer assisted program trades. Contrary to what the public thinks, these collars do not completely stop all program trading, nor do they cancel out today's premium (prem) execution levels.

The NYSE defines a Program Trade as:
1. A basket of 15 or more stocks from the Standard & Poor's 500 Index.
2. A basket of stocks from the Standard & Poor's 500 Index valued at $1 million or more.

Once the NYSE program trading collar is in place, Program Selling can be executed only on an up-tick. That means that the last trade was executed at a higher price than the trade before it. Program Buying can be executed only on a down-tick. That means that the last trade was executed at a lower price than the trade before it.

Posted by: DRdan at June 9, 2006 3:54 AM [link]

On the old CNBC bug, they used to display "CURBS IN' when applicable. With the new graphics, does anyone know if they are still displaying that info?

Posted by: Pangloss at June 9, 2006 7:57 AM [link]

Bill-not a day goes by where I do not learn something from you. Your knowledge of the markets and ability to decipher what caused the markets to move on a given day is stunning. Thanks again.
BTW-has anyone ever heard of the Pacific Trading Academy? Are they worth it?
Ray

Posted by: rayg at June 9, 2006 8:56 AM [link]