It is no secret that the markets are manipulated. Periodically, the question
is asked if the Dow theory, cycles or any other technical methods can remain
valid in a world of extreme manipulation. The short answer is, Yes. While manipulation
can have a temporary effect on the market by stretching a cycle, it cannot
fix the underlying problem or negate the natural cyclical rhythm of the economy
or the market. In fact, history clearly shows that it is not nice to mess with
Mother Nature in that the inevitable cyclical ebb and flow will have its way.
So, yes, the natural cyclical forces of the market can be extended through
manipulative practices, but ultimately such manipulation only serves to make
matters much worse in the end. Thus, the efforts to manipulate, control the
market and the economy and even the belief that they can be controlled is a
cycle in itself.
I think we can all agree that every known influence, be it positive or negative,
false or real, fundamentally sound or not, big or small, founded or unfounded,
manipulative or not, all impacts price. In other words, price is a function
that is based on everything known or believed to be known to all market participants.
That said, understand that the very basis of technical analysis is that everything
is discounted into price. So, if every influence known to man and the market
is reflected in price and technical analysis is a study of price, then absolutely
the Dow theory, technical and certainly known cyclical and statistical methods
are just as valid today as they have ever been and the manipulative efforts
to "fix" things don't really matter. The only variable that I see in technical
analysis, like anything else, is that one person will see the data to mean
one thing, while another person may see it to mean something different. We
should all be able to relate to that. Therefore, opinions may vary, but still
everything is discounted into price and it all boils down to the technician,
his methods and the proper interpretation. Because my methods incorporate
the use of quantitative analysis, the research and resulting opinion is much
less subjective. I must also add that more often than not, the quantitative
based findings often prove to be very much contrary to public opinion.
With this all said, I am fully aware of the fact that most averages are at
or near all time highs. Furthermore, 99.9999% of the people you talk to will
tell you that we are in a bull market. I mean, come on. Isn't that "obvious?" Well,
let me say this. Things aren't always as they appear. Please refer to the It's
Not As It Appears article for those details. Anyone who has not read that
article should stop here and read it for background information and then come
back to this article.
From my seat, the underlying technical picture and the associated statistics
tell me that this liquidity induced advance is an absolute disaster waiting
to happen. While many think the manipulation has saved the world, that it has
created a bull market and that the money masters have made everything okay,
probability suggests that the unprecedented manipulation and the advance that
has resulted will, once again, only make matters worse. For example, as the
advance out of the 2002 low began to stretch in light of the liquidity driven
manipulation during the advance in 2005, 2006 and into the 2007 top, the statistics
began to tell me that these practices were only making matters worse, which
proved correct. But, look what has continued to take place in association with
the current advance. Even more of the same insane liquidity driven practices
that created the worst financial disaster since The Great Depression. As a
result, these manipulative practices have stretched this cycle into the longest,
since the inception of the Dow Jones Averages in 1896. When I look at underlying
technical data and the statistics associated with this very extended advance,
I find the potential for the downturn of this cycle truly horrifying. When
I say horrifying, I don't just mean financially. This time around, I also see
the potential social and political implications. Based on the data, there is
no question in my mind that this rally has not been what it appears. This is
a giant trap and like the old saying, "there is always free cheese in the mouse
trap."
Manipulation is nothing new. It has occurred since the very existence of markets.
By the same token, cycles have existed since the inception of the markets as
well. In one respect, cycles and manipulation go hand in hand. It is generally
the downside in which the manipulation is typically targeted in an effort to
prevent the natural downturn. There is no doubt that the various manipulative
practices of the varying manipulative degrees may have managed to stretch and
in some cases distort the natural ebb and flow of the cycle. But, in the end,
the manipulation cannot prevent the inevitable forces of Mother Nature and
the cycle will have its way. The thing that the manipulators never seem to
understand is that their very efforts to prevent the downside portion of the
cycle by extending the upside, only serves to make the reversion to the mean
even worse. Thus, this is in and of itself a cycle.
So, my point here is that the manipulative efforts by the powers that be have
fixed nothing and while their efforts have indeed stretched the cycle, the
reversion to the mean with the downturn of the cycle is coming. When we combine
the basic facts outlined in the It's
Not As It Appears article, along with the ongoing manipulative efforts
that have created this situation, I'm telling you, when the cycle turns down
it is going to be hell for anyone caught in the aftermath. In addition to the
historical observations of manipulation and stretched cycles, Dow theory, the
associated cyclical statistics and my DNA Markers all tell me that this is
an extended cycle advance that is not going to end well. I identified a set
of common denominators that have been seen at every major top since the inception
of the Dow Jones Industrial Average in 1896. Those DNA Markers allowed me to
identify the 2000 top in the Industrials as well as the 2007 top, the housing
top and the commodity top in 2008 and the 2011 9-year cycle top in gold. I
can tell you with certainty that manipulation is nothing new. I can also tell
you that all efforts in the past to manipulate any market have ALL failed and
the cyclical forces have always had their way. Probability suggests that this
time is no different. The DNA Markers will appear, the setup will happen and
it will be proven once again that the cycles cannot be manipulated without
consequence. Something will come along, it will all fall in place and when
it does, the trap will be sprung and the free cheese will suddenly appear differently.
For those that think the markets can be manipulated without consequence, please
take heed to these warnings!
The following text on Manipulation was taken from Robert Rhea's book, The
Dow Theory.
"Manipulation is possible in the day to day movement of the averages,
and secondary reactions are subject to such an influence to a more limited
degree, but, the primary trend can never be manipulated.
Hamilton frequently discussed the subject of stock market manipulation.
There are many who will disagree with his belief that manipulation is a
negligible factor in primary movements, but it should always be remembered
that he had, as a background for his opinions, a most intimate acquaintance
with the veterans of Wall Street, and the advantage of having spent his
life in accumulating facts pertaining to financial matters.
The following comment, taken at random from his many editorials, affords
convincing proof that his views on the subject of manipulation did not
vary:
'A limited number of stocks may be manipulated at one time, and may give
an entirely false view of the situation. It is impossible, however, to
manipulate the whole list so that the average price of 20 active stocks
will show changes sufficiently important to draw market deductions from
them.' (Nov. 29, 1908)
'Anybody will admit that while manipulation is possible in the day-to-day
market movement, and the short swing is subject to such an influence in
a more limited degree, the great market movement must be beyond the manipulation
of the combined financial interests of the world.' (Feb.26, 1909)
'...the market itself is bigger than all the 'pools' and 'insiders' put
together.' (May 8, 1922)
'One of the greatest of misconceptions, that which has militated most
against the usefulness of the stock market barometer, is the belief that
manipulation can falsify stock market movements otherwise authoritative
and instructive. The writer claims no more authority than may come from
twenty-two years of stark intimacy with Wall Street, preceded by practical
acquaintance with the London Stock Exchange, the Paris Bourse and even
that wildly speculative market in gold shares, 'Between the Chains,' in
Johannesburg in 1895. But in all that experience, for what it may be worth,
it is impossible to recall a single instance of a major market movement
which depended for its impetus, or even for its genesis, upon manipulation.
These discussions have been made in vain if they have failed to show that
all the primary bull markets and every primary bear market have been vindicated,
in the course of their development and before their close, by the facts
of general business, however much over-speculations or over-liquidation
may have tended to excess, as they always do, in the last stage of the
primary swing.' (The Stock Market Barometer) '...no power, not the U. S.
Treasury and the Federal Reserve System combined, could usefully manipulate
forty active stocks or deflect their record to any but a negligible extent.'
(April 27, 1923)
'The average amateur trader believes the stock market is guided in its
trends by a certain mysterious 'power,' this belief being the one factor,
next to impatience, most responsible for his losses. He reads tipster sheets
avidly; he scans the newspapers industriously for news likely, in his opinion,
to change the trend of the market. He does not seem to realize that by
the time the news of real importance is printed, its effect, so far as
the basic trend of the market is concerned, has long ago been discounted.'
'It is true that a flurry in the price of wheat or cotton may influence
the day to day movement of stock prices. Moreover, sometimes newspaper
headlines contain news which is construed as bullish or bearish by market
dabblers, who collectively rush in to buy or sell, thus influencing or
'manipulating' the market for a short period. The professional speculator
is always ready to help the movement along by 'placing his line' while
the little fellow timidly 'lays out' a few shares; then, when the little
fellow decides to increase his commitments, the professional begins to
unload and the reaction ends, and the primary movement is again resumed.
It is doubtful if many of these reactions would ever be caused by newspaper
headlines alone unless the market was either overbought or oversold at
the time---the 'technical situation' so dear to the hearts of financial
news reporters.'
'Those who believe the primary trend can be manipulated could, no doubt,
study the subject for a few days and be convinced that such a thing is
impossible. For instance, on September 1, 1929, the total market value
of all stocks listed on the New York Stock Exchange was reported to have
amounted to more than $89,000,000,000. Imagine the money which would have
been involved in depressing such a mass of values even 10 per cent!'
If you are interested in following the underlying technical developments
associated with this rally, as well as the research and identification of the
DNA Markers that should appear in association with this top, that material
is available by subscription, in my research letters at www.cyclesman.com
