It's Already Not Just Another Three Percent Pullback.

I have often written over the years about the successful efforts of Wall Street's large program-trading firms to fool investors by keeping the 30-stock Dow looking as positive as possible.

It works for two reasons.

First, most investors are wisely busy with careers or enjoying their retirements. So if they glance at their smartphone during the day, or flick on the TV when they get home, and see the Dow was up, then to them the market was up, and all is well. Even if they notice the Nasdaq was down, it doesn't matter. The Dow is the market.

Secondly, since the Dow consists of only 30 stocks, it's relatively easy for the program-trading firms to hit say 3 (10% of them) with a buy-program to lift the Dow when desired.

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One employee at a program-trading firm boasted a number of years ago, "Tell me in the last half hour where you want the Dow to close and give me a few million to play with, and I could most often close it within 10 points of what you want. I couldn't move it over a full day or a week, but for half an hour, no problem."

It's often very noticeable in the last half hour of the trading day when the market is down some and suddenly spikes up 30 points in the final minutes to close marginally positive. Or when it needs a similar last hour spike on a Friday to close it positive going into a weekend.

It also shows up on those relatively rare occasions when the market experiences a correction or something worse.

I wrote about it my 1999 book Riding the Bear. Back in the early 1900's, before regulations came into being after the 1929 crash, market manipulation was not illegal. The famed investors of the time, Joseph P. Kennedy, Bernard Baruch, John D. Rockefeller, Carnegie, Walter Chrysler, and many others spoke openly about it, even boasted about using misleading publicity in radio shows and interviews near market tops, and pumping up the prices of some popular stocks to keep investors bullish, while the manipulators unloaded tons of stocks in the rest of the market, getting out slowly before public investors caught on and began selling and driving prices down on them.

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We can know that similar activity is not possible now, with the tight rules and regulations under which Wall Street and the big players have to operate.

But isn't it interesting what shows up in even a minor 'pullback', in the way of corrections sneaking up on markets.  

Wall Street's assurances when this pullback began was that it would only be another of the many 3% pullbacks, perhaps 4%, the market has experienced since 2012.

And so it has been so far, for the Dow. From their peaks the declines look like this:

DJIA: – 4.3%

S&P 500: –5.2%

NYSE Composite:  -7.0%

Nasdaq: 7.0%

DJ Transportation Avg:  -9.0%

Russell 2000: –12.8%

It explains why in market corrections investors who are not concerned about the market because the Dow is looking resilient, are often surprised when they get their monthly brokerage or mutual fund statements. While the Dow, or even the S&P 500, are looked on as representing the market for them, the most popular investment areas for investors are not the 30 Dow stocks but the small stocks of the Russell 2000 and the more exciting and promising stocks of the Nasdaq.

It's been similar how, until recently, U.S. investors were not concerned about the plunges in global markets. After all, the U.S. market was doing well. Just look at the Dow, until this week, down only 2% or so.

It would seem that it's already been shown that this is not just another 3% pullback.

Speaking of global markets.

No commentary needed. Many with the largest economies are back to, or below, their levels of last October.

And never mind short-term 50-day moving averages, below long-term 200-day m.a.'s.

But are they oversold enough to produce at least an impressive oversold rally on the first piece of good news they hear?