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“Capital positions of European banks must be reinforced to provide additional safety margins and thus reduce uncertainty. This should be regarded as an integral part of the EU’s comprehensive strategy to restore confidence and overcome the crisis.”
                                    Olli Rehn

Editor’s Note: Zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz …………….

Commentary & Analysis
Financial Times in cahoots with the PPT? The S&P 500’s fate depends upon it … sort of!

Well, that was awfully convenient. Did you notice the Dow rally 4% in the last 45 minutes of trading yesterday?

I sure did. I had a stop-in order trade idea I presented to my Commodities Essential subscribers that was barely filled just before risk appetite shot up like a rocket. As I was watching the afterhours trading it appeared that I’d be facing a major hit when the markets opened this morning.

Before I discovered the “reason” for the sharp reversal, I could do nothing but curse the PPT (Plunge Protection Team). The PPT has a certain way about them (assuming “them” really does exist) – they have a way of ruining traders for the sake of saving investors, I guess you could say.

Turns out, though, that this new position I mentioned at the start will probably open up in profit territory this morning as the underlying commodity is not being supported by yesterday’s late-afternoon news.

If you want the news, here is a Financial Times article with some details: EU examines bank rescue plan [Editor’s note: this article has been updated from its original form.]

A blog I read regularly speculated yesterday after the US session closed that the Financial Times was trying to facilitate a ‘Europe will be ok after all’ rally in the markets (hence the title of my Currency Currents this morning.) That same blog this morning is now showing a simple Bloomberg headline to show that the Financial Times story amounts to not much more than a bunch of baseless hype.

According to flashing Bloomberg headlines, "EU Says No Concrete Bank Recapitalization Plan Right Now"

Still, in building the conspiracy theory, considering that all of the power elite around the world are in cahoots and assuming that a PPT guy prodded a Financial Times connection, the recapitalization news may have succeeded. Here’s why …

Looking at the S&P 500, it was testing hugely critical resistance yesterday. Before that, many market watchers (me included, until I saw the pre-PPT price action yesterday) were expecting some type of bounce; but it wasn’t happening. And technically, if the S&P didn’t hold support yesterday, it could have been lights out. Instead, traders wake up today looking at a key-day reversal bar that would normally suggest at least a short-term rally.

S&P 500, daily:

S&P 500, weekly:

We’ve seen how quickly the markets can plunge – it seems the PPT doesn’t even want to see if the 1,000 level can provide support for the S&P.

The question now: how long can this impendent sell-off be held off? My guess is that, should yesterday’s late-day rally find some follow-through, the S&P 500 will not make it back to 1,200. A move down to 1,000 seems a good bet.