Weekend Strategy Review Update 10/25/15

Posted by OMS  at October 25th, 2015

After Thursday’s and Friday’s strong rally, I felt compelled to take some time to look at the patterns on the major indexes to see if I could come up with a different view of the pattern or wave count, besides the Major Wave 2 up scenario.  I thought that maybe, just maybe something else is going on that I haven’t seen or didn’t considered.

I couldn’t.  At least I couldn’t at this point.  Obviously as I said in my WSR, if the Dow starts to make new highs, that will change the pattern.  But right now I still have to go with the wave 2 retracement scenario.

So what might have caused last week’s late rally?   In my WSR, I talked about a ‘through over’ wave, and it is not unusual to see a wave like this develop as part of an Ending Diagonal Pattern.  But what causes it to happen is far more interesting.

There’s a good chance that the market was manipulated last week by the President’s Plunge Protection Team.  I talked about these guys in previous articles and how they work to stabilize the market.  The group was established in 1988 by President Reagan and is officially called the Working Group on Financial Markets. You can Google them if you want to find out more.

The way they manipulate the markets is to ‘goose’ one or two stocks in the futures market, and because so many traders are short, it forces them to cover which tends to create a buying panic in the index the goosed stocks are trading.  We saw this happen in the Dow last week with McDonald’s.

Let’s face it, MCD has been a dog, staying at the same level for the past for the past 4 years.  Do you really believe that offering their breakfast menu all day will make their food or service any better?  If people eat low priced McMuffins for lunch instead of high priced burgers and fries, how will this increase their bottom line?  Can a menu change really pop the stock 10 points in 2 days?  Hmmm?

If you ask me, it looks like the PPT has its fingerprints all over this one.

But why would the PPT become active now?  It could be that they are starting to see a few really bad economic numbers, and they desperately want to help the Fed with their low interest rate problem.  Who knows?

The Fed meets next week to decide on interest rate policy.  And now that the market has been ‘goosed’, it might give them an opportunity to raise rates a quarter point.  At least this would put one bullet back in their gun.

Anyhow, this is pure speculation on my part.  But given that last week we saw Super Mario hype the European markets by suggesting more stimulus in December without actually doing anything, one has to wonder if all this is tied together.

If the Fed raises rates on Wednesday, theoretically it would make the dollar stronger.  Gold would likely react negatively, as would all of the large cap domestic stocks that do a lot of business overseas. The Dow is loaded with these international stocks, like McDonald’s.  

So what happens on next Wednesday should be very interesting.  It could explain a lot about what caused last week’s rally.

Have a great weekend.

That’s what I’m doing.

h

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