I essentially agree with the premise that disguising a PPT and it's unlawful activity are major impediments for me to accept it's existence.
That said, I don't believe the article did justice to explaining away how the PPT might work. It claimed it doesn't exist but assumed a profit motive in any manipulation and then explained why profit-oriented manipulations were impractical.
So I'll play devil's advocate, and I have some questions. The anomalous behaviors I've seen which don't fit my admittedly limited understanding of how the big players trade are:
Frequent trades at and then above the ask price (they're not even trying to save money), widening of spreads, and volume trading inside the spread, then the bid moves up and the cycle repeats. Prices move up even when sellers outnumber buyers.
Huge staggered trades in DIA's, SPY's and QQQ's about 5-30 minutes apart, and seemingly synchronized trades in index weighted stocks noted above. I don't watch the entire market, just the indexes and options, the stocks noted (and other stocks I watch looking for an entry). At present I have no insight into option Time & Sales data, other than QQQ's and S&P minis are reported to have had a record breaking month. But I can't tie specific option trade volume to the forementioned index and stock movements.
There are no buyback plans announced for these stocks and Thompson I-Watch shows little or no retail interest in them, below average institutional interest, and the rest (non-I watch) of the volume has spiked (relative to monthly averages) on those days when it would seem the market reversed or rallied for no reason. There are no funds I know that would make concurrent trades in these diverse stocks and they are in different sectors.
The 'pattern' stops when the market moves upward and resumes when it falls off. IBM, GE, MMM, etc. are not the kind of stocks that would have huge short positions to be covered and this trading is not what an institution would do to unwind a position and I can see no reason (and I watch confirms) institutions are not accumulating positions.
These patterns are not observable when trading is heavy - too much chaos to detect any kind of signature, and a successful 'plunge protection' pattern doesn't work under heavy selling pressure.
I assume the hypothetical-PPT is not interested in profit or owning stocks. They are only interested in moving the price upward of everyone else's stock. Many of the arguments hinge on the intervener presumably ending up owning a bunch of stock to accomplish it's goal. I think that is a false assumption. I think they can move the price up and end with no position over a couple days if not hours. I elaborate below, but keep in mind how much hinges on a presumption of owning stock as opposed to trading stock.
And that often is what you see when there are large and strange moves. Just traders taking profit, either on the long side or short side. It is what Chris Fuligni calls his TFTF trade: Too Far Too Fast. When the market moves too much in one direction, traders take profits.
Consider this 3 month DJIA chart Jan 2003 to present:
The assumption is that the hypothetical-PPT reversed the most recent plunge on Mar 12, 2003, so I'd like to examine the various 'traders just taking profits' on that date.
Why would short positions be covered on a day the market was falling sharply? On such a day, what short trader would cover so as to reverse the market and force even more aggressive covering the next day? Who would have such a broad short position? Why would shorts preempt a profitable move down, just to take profits. If they had just gone short after Feb 21, would they not be interested in a larger move? If they had gone short back in January, they had already sustained at 300-400 point move up in mid-February and were at less risk on March 12 of needing to cover. Even if it is SOP for shorts to cover when the market makes big moves up (300-400 points), who initiated the move up? Who triggered the short covering?
Why would long positions be initiated or accumulated at a rate that drove the price up? If they wanted to accumulate why not do so at increasing lower prices? Isn't the long accumulation strategy to 'buy on the dips' and not reverse the dips? Who would accummulate such a broad position? What fund manager is that incompetent as to so drive up prices he has to pay? If a long position is being unwound, that adds to selling pressure and downward prices, not a reverse upward.
I would agree the following day, March 13th could have been short coverering which drove the prices up and then funds and others piled in and started a rally. But who had both the desire and ability to trigger the reversal the previous day? The reversal was not in a few key stocks, it was broad. What funds have such broad positions? I don't believe there are enough index tracking funds alone to produce the upward pressure. They'd have to be joined by other specialty/sector funds. I doubt they'd all coordinate well enough even if they desired to. I can't imagine any fund protecting a falling position by buying more stock - "never catch a falling knife" is another of Art Cashin's bits of wisdom.
Some would argue that the PPT does not lose money - that they are so good they buy the stocks and wait until the market goes back up before they sell.
Not necessary.
The hypothetical-PPT is only interested in driving up the price of everyone else's stock, they are not and need not be net long any stock to do that. They can buy out a seller at the ask, and the next at a higher ask, they can also buy above the ask, or become the seller and move the ask up. They can do this above the bid, encouraging bidders to likewise bid-up. As sellers see the ask come up, profit motive will induce them to raise it themselves. In this fashion the bid/ask and spread move up, though the hypothetical-PPT now owns some stock. When the spread has moved up enough and become wide enough, the hypothetical-PPT then sells back it's position inside the spread thereby unwinding itself without moving the price. The 'momentary' position (in any given stock) would have been small relative to the daily volume and easily sold back, especially if this is done every few upticks or so. This can be repeated throughout the trading hour, day or week. Net long positions and tens of billions of dollars are not needed.
Further, a hypothetical-PPT-trader can occupy the bid/ask position and trade with itself and thereby move the bid/ask up and widen the spread without any further net increase in shares owned by trading with itself. This can be done by having two or more hypothetical-PPT-front accounts and executing off-floor cross trades with itself. I'm uncertain how this is done in different exchanges but I'm told the rules/regs allow for company A to privately agree to trade with Company B via Broker X. This is a cross-trade between A and B and it is privately arranged via the broker off the floor. Once the trade is done, it hits the tape. There are rules about how quickly the result is reported, on the order of minutes.
Assume the foregoing is programmed trading with many hypothetical-PPT-front accounts and you have a system for manipulating stock prices, assuming you had the clout to set up the programs, accounts, and had an extendible slush fund to draw upon.
I would pick stocks that impact the COMP, DJIA and S&P 500 - like IBM, GE, MMM, JNJ, PG (and more) which overweight the DJIA and are in the S&P, and also MSFT, INTC which are in the COMP and DJIA, etc.
The problem is that buying futures cannot drive the stock market, which is obvious to real traders.
I have my doubts about how effective this is, especially on heavy selling days, but again, assuming a PPT and taking the rumors of a 'mystery options buyer' at face value, and assuming the hypothetical-PPT might try to make effective use of futures:
Buying futures cannot "drive" the stock market, but I believe it can nudge the market if it's otherwise drifting sideways and if the future buys are perceived by the writers as likely to be in the money. Depending on who is writing the options and how close to being in-the-money the option holder is, the writer (usually the broker) will either cover by buying stocks in the money and mitigate loss, or buy stocks and drive the price up out the money (if the option is a put), or short the stock and drive the price down out of the money if the option is a call. This is effective with thinly traded issues and seems less and less effective as more and more stocks are included.
Depending on the strike price for the preponderance of options written, proximity to the market price, and the writers exposure, this is what drives expiration trading crazy. Like with stocks, the hypothetical-PPT need not be a net holder of options. They can trade them away to someone else at a loss, or let them expire out of the money and take a loss on the premiums. Don't assume a profit motive.
Further, the hypothetical-PPT in fact is not always successful.
It may be most effective on light trading days to give and upward direction to a market that is trading sideways. Theoretically, they ought to anticipate good or bad news and try to move the market up before bad news (knowing a sell-off is pending and they won't be able to stop it but they can start it up higher so it ends higher) or move it up when good news is announced (to leverage the good news and start a rally or short covering).
This relies on greed and the anticipation of many traders that the 'bottom' is coming and the next bull run is not to be missed. Getting commentators to 'call the bottom' or 'distract attention to the war' would help as well. So many are looking for an excuse to pile in and up, and triggering a moderate move up is possible when there is not real selling pressure. Sellers are naturally inclined to raise prices provided the perception of a buyer is there. Bidder's not wanting to miss an upward move, are naturally inclined to follow - in absence of fundamentals - which is what makes this market bizarre.
The amounts of money required to attempt such a manipulation would be huge. We are talking tens of billions of dollars if there was a true collapse going on.
Only if a net position was being accumulated. As has been pointed out, the hypothetical-PPT can end up flat the market on a daily if not hourly basis. DOD black box projects frequently get billions allocated - stealth fighter development for instance. A hypotheical-PPT might be able to get what it needs, especially under Greenspan's Fed.
Also, in this regard, while I regard Art Cashin highly and found his explanation of arbitrage in indexes and futures contracts against indexes, etc interesting, Cashin did not directly address the issue of why trading futures would or would not move the market. Cashin only addressed the risk/profit motives for not attempting this, which in turn ignores a key premise of the hypothetical-PPT in that they don't care about the risk and aren't motivated by profit.
Furthermore, if there is a PPT, they are the most incompetent team in the world because the markets have indeed plunged.
Markets would have plunged further had not huge short positions covered. This is a truism. But must the catalyst have been short covering? Would not hypothetical-PPT intervention produce the same appearance, albeit a different cause? Do we assume short-covering only because we have no other answer?
By normal standards, a hypothetical-PPT is incompetent only because they made no profit and long-term the market will correct to align with economic fundamentals. The hypothetical-PPT's goal was to stave off a plunge - at which someone seems quite competent.
If my horse doesn't win - the race was fixed - the horse was doped. The variations are myriad. It can never be my fault or my miscalculation.
To the contrary, I don't hear anyone blaming a hypothetical-PPT for their losses (save possibly those who are long gold and blame shorters, though most of that blame I've read about is laid against the big banks and may be justified as I recollect reading the US government has yet to certify that it's gold reserves are actually in reserve and weren't loaned out to shorters). In fact folks on this thread and on this forum take a high degree of responsibility for their decisions, and are merely looking to avoid a rigged game. i.e. they want to avoid the irresponsiblity of government.
It was reported yesterday that money is flowing out of hedge funds and bear market funds because their profits have been wiped out in the recent bear market rallys. So who's left? Again, the hypothetical-PPT need not solely drive up the market, just trigger any previous or remaining shorts to cover is a good start, and also create enough perception in sellers and buyers that an incremental move up is possible, Greed will do the rest, if there is no fear or panic. Once reality sets in the hypothetical-PPT will not be able to stop it, as is evidenced by the many days of heavy selling and falling prices.
I would appreciate constructive criticism to educate me where I've misunderstood, or confirmation of possibilities and opinions as to likelihood.
Again, I doubt the PPT and I posted this not so much to persuade anyone the PPT is real, but to think out loud a bit about what is theoretically possible, and ask the question "If you were the PPT, how would you do it?"