Sunday, February 7, 2010

1. The Invisible Hand

I normally do not spend time on specific market days and try to focus more on long term trends, but Friday’s session in the stock market had a peculiar incident that cannot go unnoticed.

The stock market received a thrashing all week as investors have begun to panic about the foreign debt problems.

The sell-off continued throughout the week until late in the day on Friday when out of nowhere it made a violent move straight up as can be seen in the chart below.

The market move was made by a single buyer purchasing an incredible amount of an ETF called SPY. This ETF is a basket of stocks in the S & P 500. That one trader was JP Morgan.

Perhaps they decided at that moment to get more bullish on the stock market than any other time in history. We’ll never know why.

After this market move, traders began covering their short positions for the rest of the day heading into the weekend. If a bail out was announced for Greece this weekend, no one wanted to be short and unprotected when the market was closed. (More on that to come)

Aside from this single day move, the overall market trend has been down. Investors have begun to  worry about a “double dip” for the economy. Two main factors leading this charge are unemployment and housing.

Let's take the jobs picture first.....