Is this market being manipulated?

Free After-Hours Update:

The S&P500 started Thursday with another abysmal gap lower. Trump called off his scheduled meeting with Kim Jong Un before the open and that sent stock futures into a tailspin. That mirrored Wednesday’s horrible open following a flareup of Trump’s trade war. Consecutive days of bearish headlines followed by horrid opens, can it get any worse?

As bad as we started, the S&P500 is actually ABOVE Tuesday’s close! How could two horrible days end in gains for the index? No wonder so many people feel like the market is “rigged”. When the market doesn’t do what we think it should, obviously the only plausible explanation is someone is manipulating it.

Of course that is far from the truth. There is there is no evil wizard hiding behind the scenes tricking and deceiving us. People who think the market is fixed simply don’t understand why it is doing what it is doing. There is no trickery. There is no boogie man. It is nothing more insidious than a simple misunderstanding.

When humans didn’t understand why the Sun came up every day, they assumed is was being controlled by the Gods. The same logic  occurs in the stock market today. When people don’t understand why the market does something, they blame it on some evil conspiracy that has rigged the market against them. It couldn’t possibly be that their analysis is flawed.

Luckily for regular readers of this blog, most of us understand what is going on and were not fooled by these bearish headlines and weak opens. As I’ve been saying for a while, this market is strong, not weak. There have been plenty of bearish headlines swirling around this market for months. Yet this market is consistently oblivious to them. Bears claimed it is only time before the “sheep” wake up and send stock prices tumbling. But the critical flaw in the Bear thesis is market selloffs are brutally quick. They happen so rapidly most people don’t have to react. Yet here we are, holding 2,700 support for two full weeks. What selloff gives us two weeks of warning before plunging? None. That’s how I knew the last two weak opens were not sustainable and were bound to bounce. If we were going to crash, it would have happened a long time ago. This market is strong, not weak. That meant recycling trade war and North Korean headlines were not going to make any more of a difference than the first time they occurred.

Everyone knows markets move up and down. This is one of the most fundamental principles of the stock market and it is plainly obvious to anyone who glances at a stock chart. We all know stocks mostly go sideways and most of the ups and downs don’t really mean anything. Yet most people forget this most basic concept in the heat of battle. If most day’s gyrations are meaningless noise, why do we always try to find a meaning in today’s price-action? Why do we automatically assume today’s bump in the road is the start of the next big move when most bumps in the road never go anywhere?

With the benefit of hindsight, we can confidently say Wednesday’s and Thursday’s gap lower opens were nothing more than meaningless noise driven by a handful of reactive traders trying to “get out before things get worse”. Their impulsive selling was clearly a mistake and just a few hours later they are poorer for it. As I’ve said countless times before, this is a strong market, not a weak one. If we were going to crash, it would have happened by now.

While the path of least resistance is most definitely higher, the easy gains are behind us. There is no way we could keep the sharp rebound from May’s bottom going indefinitely. We knew a cooldown and consolidation was inevitable. We also know gains slow down the further into a move we get. Applying that to this market, it seems pretty obvious that prices want to go higher, but that we should expect the rate of gains to slow down and for there to be more back and forth. And guess what? That’s exactly what’s happened.

Those of us that were paying attention during May’s dip and rebound have collected our fast money. But that trade has come and gone. Now we are into the slow money portion of the rebound and should expect the gains to accumulate much slower and be accompanied by a bunch of back and forth. Those of us that believe in this market should stick with our buy-and-hold positions and enjoy this slow glide higher. Anyone who has less conviction should simply sit this one out and wait for a better trading opportunity. Without the conviction to sit through dips like Wednesday and Thursday, that inevitably leads to reactive selling and poorly timed trades.

---

FAANG stocks are acting well and these tech highfliers will continue leading this market higher. But just like the broad market, we should expect the rate of gains to slow down as we fall into the slow summer sessions.

Bitcoin still looks broken. $9k support two weeks ago gave way to $8k support last week, which has since given way to S7k support here. Hopefully everyone sees the pattern here. We are in a bear market and the downtrend is still alive and well. Expect prices to undercut the $6k lows over coming weeks. This bubble isn’t done bursting and that means lower-lows are ahead of us.

If you found this post useful, return the favor by sharing it on Twitter, Reddit, Facebook and StockTwits!

Jani

What’s a good trade worth to you?
How about avoiding a loss?

For less than $1/day, have analysis like this delivered to your inbox every day during market hours.