Wall Street Bounces Back After Slide

by John M. Curtis
(310) 204-8700

Copyright June 20, 2011
All Rights Reserved.                                         

         Wall Street completed its latest profit-taking cycle, now poised for a another upward run, not based on global economic news but purely and simply on a profit-driven sell off.  Yesterday’s dour headlines now give way to more positive news, creating ripe conditions for another buying frenzy by the nation’s biggest funds.  When stocks head south, there are always convenient excuses to hide the unseemly reality that the nation’s biggest funds all buy or sell on the same day.  Blaming today’s buying frenzy on a possible resolution to Greece’s sovereign debt totally ignores Wall Street’s all-too- familiar selling and buying cycles.  Whatever happens to Greece’s debt, Wall Street likes to buy bargains after prolonged sell-offs.  There’s always a good excuse for why the market rises and falls but only the market-makers and big funds know when its time to take profits or buy back in.

            Long-term investors have no choice but to ride out market volatility.  Despite the roller coaster, no one knows when programmed selling or buying kicks-in other that the nation’s biggest investment banks like Goldman Sachs.  “In the short-term, stocks have been oversold, and you’re going to get some sort of bounce, whether or not just for technical reasons,” said Paul Simon, chief investment officer for Tactical Allocation Group, which manages over $1.5 billion in assets.   Funds like Simons rely on buy or sell signals accounting for why the market rises or falls precipitously on any given day.  Wall Street exploits any news story to justify its upward or downward pressure on stocks.  Recent stock market losses seem correlated closely with a drop in oil prices, signaling a sell-off in oil-related funds.  It’s counterintuitive to expect a drop in the stock market with lower oil prices.

            Last weeks doom-and-gloom gives way to this week’s positive economic news justifying market up-ticks.  Last week’s European debt crisis was the perfect excuse to continue the sell-off.  This week’s talk of another bailout for Greece helped justify the third-straight day of market advances.  Since the tsunami hit Japan March 11, the stock market’s been selling off, not because of a disruption in the business cycle but because Wall Street used the event to justify selling off.  When traders believe the market is oversold, they find the right excuses to buy stocks.  Over six weeks of selling satisfied traders’ needs for “value” stocks, where a carefully orchestrated stock picking improves the big fund’s bottom lines.  Today’s buying opportunity justifies the most optimistic news about the world economy.  Sell-offs eventually bring about buying opportunities, in otherwise bull markets.

            Should markets reverse course tomorrow, you can rest assure that Wall Street will find the right excuse in the news.  Wall Street won’t admit that the markets are manipulated by the nation’s biggest funds, causing large upward or downward selling trends.  Long-term investors have never recognized Wall Street’s coldly caculated profit picture, where the biggest funds sell-off or buy-back at the same time.  What happens in lower Manhattan has nothing to do with what goes on in Frankfurt, home to the European Central Bank.  Whether European leaders agree on a specific Greek rescue plan shouldn’t have much effect on Wall Street.  When riots break out in Athens, it creates nervousness on Wall Street and Frankfurt.  Only international currency traders take note of political, economic and social trends to value currencies.  Bad domestic or global news gives funds the perfect excuse to sell off.

            Looking at the big pictures, the market sells off when funds decide its time to take profits. Linking bad economic or political news to justify profit-taking is Wall Street’s way of doing business.  Domestic and global news only play a minor role to the nature of sell-offs and market rallies.  Long-term investors have no way to know when the big funds will either sell-off or buy back.  “There’s a little fatigue about hearing about the same problems, and there’s no shock factor any more,” said Oliver Pursche, president of Global Financial Services, expecting the current volatility to continue.  Small-size long-term investors, currently at the mercy of big funds, should take solace that sell-offs can only last so long  before the big funds eventually gobble up bargains.  No one knows for sure how far market-makers will allow Wall Street to rise before eventually locking down profits. 

            Today’s market rally shows that the same kind of bargain hunting that follows prolonged periods of profit-taking.  Whatever the price of tea in China, it doesn’t change Wall Street’s basic algorithm for making money:  Buying low and selling high.  Small-time investors should stop trying to time the market and accept Wall Street’s endless selling and buying cycles.  Wall Street uses national and global news to justify its buying and selling practices.  Federal Reserve Board Chairman Ben S. Bernanke and Treasury Secretary Tim Geithner are on the same page when it comes to maintaining a rising stock market.  While Wall Street’s big funds know the drill, small investors lose the big picture, panic and sell-off during predictable profit-taking cycles.  No matter how catastrophic major news events, investors shouldn’t forget how Wall Street makes money:  Selling and buying.    

John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com.and author of Dodging the Bullet and Operation Charisma.

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