Andrew Packer
My dad may be the one who taught me all I needed to know about finance, but my mom taught me how to gracefully handle being self-conscious. You see, like many parents, she has a knack for telling friends embarrassing stories about me.
For example, growing up she’d often tell my friends about how I watched the movie The Sound of Music every day when I was five years old. This was a bigger embarrassment when I was a teenager, but as an adult, it still throws me off guard.
Now, I really don’t want to contradict my mother... nor do I want to confirm anything embarrassing she has to say about me.
But what I AM going to say is that one particular scene from that movie has been stuck in my mind lately. Why? Well, on Monday, the market opened up huge — but gave back all the gains later in the day and closed pretty flat. A smaller version of this erratic market happened again yesterday... The day opened with a rally but fell apart, sending stocks below their 200 day moving average (the technical trigger traders refer to as bear market territory). And with such little trading volume, it’s apparent to most major players that 'quants’ (the folks who program and run computerized trading programs at major firms) are clearly in charge.
Seeing the attempts to continue manipulating the market upwards reminded me of one particular movie scene... ...only without the merriment.
It doesn’t take much to manipulate a market in this low-volume environment. And I can prove it to you. If I really wanted to, I could drive the price of Citigroup up 50%. And it would only set me back around $600. It’s currently trading at $4.00 per share, so if I put in an order to buy 100 shares at $6.00, I’m sure there would be plenty of shareholders willing to sell at that price. Of course, it’s silly to waste money like that.
But in theory, buying at that price may mislead others into thinking Citigroup is a worthy investment. Who knows, by the act of overpaying for those shares, the perception of increased value may result in that higher price sticking! And when perception is reality, it’s best to be wary of markets. That’s when the manipulation is the worst.
And it happens! Just last week, the new 'circuit breakers’ in the stock market kicked in when a few trades in the Washington Post Company (WPO) came in at more than double the prior price of the shares.
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