It was the culmination of many months of accumulation by Wall Street firms. I’ve discussed this accumulation, or manipulation, over and over and over and indicated that it was the likely precursor to a big stock market advance. I’ve updated a chart of the QQQ (ETF that tracks the NASDAQ 100) to show how the QQQ has been accumulated/distributed throughout the trading day since its top in November 2021. Check this out:
Let me provide you the details of each phase:
Orange Bearish Manipulation Phase
This was the period where Wall Street firms were moving from aggressive stocks to defensive stocks. I discussed this at the beginning of 2022 after consumer staples (XLP) absolutely dominated consumer discretionary (XLY) during December 2021. This manipulation period was further proof that Wall Street was preparing for the type of selloff that NO ONE was talking about. Here’s how the cumulative intraday trading looked from November 21, 2021 through January 3, 2022:
- Opening gap: +6.30
- 9:30-10:00am: +4.01
- 10:00-11:00am: -19.22
- 11:00am-4:00pm: +8.80
We were seeing opening gaps higher and early morning buying, followed by balance of day selling. That, combined with obvious rotation in “risk off” fashion spelled trouble for stocks to open 2022. There was also extreme complacency in the options world. This was the bulls’ last gasp short-term, prior to the start of a cyclical bear market.
Red Pure Distribution Phase
This was the “run for the hills” phase, when Wall Street firms were selling throughout the day to the unsuspecting public that widely remained bullish. Aggressive areas of the market were thrashed and there no signs of accumulation at any point during the trading day. Here was the cumulative intraday performance:
- Opening gap: -29.68
- 9:30-10:00am: -35.08
- 10:00-11:00am: -32.93
- 11:00am-4:00pm: -14.59
Throughout this period, we not only saw significant gap downs from bearish media headlines, but also plenty of selling during the entire trading day. The net trading performance of every part of the trading day was negative and bearish.
Light Green Bullish Manipulation Phase
This was the period where you didn’t understand what was happening, unless you were “looking under the surface” of the major indices. It may have appeared that everything was awful. The news was horrible regarding inflation, interest rates were being raised briskly, FedSpeak kept reinforcing that inflation was a major problem, recession talk began, etc. It led to very sizable gaps to the downside and morning selling, but it was followed by a TON of intraday buying. This was a major indication that Wall Street firms were perfectly content to buy every share that the public was willing to sell. In short, Wall Street was accumulating at cheap prices. Here’s how the cumulative intraday trading performance looked for this period:
- Opening gap: -44.89
- 9:30-10:00am: -33.79
- 10:00-11:00am: +8.67
- 11:00am-4:00pm: +42.48
Check out this CRAZY morning distribution, followed by the massive accumulation throughout the afternoon. There’s a reason why the first hour of trading is called “amateur hour”. The continuing awful headlines sent stocks spiraling lower throughout this MANIPULATIVE period at the opening bell. Then the herd kept selling and selling. The big Wall Street firms calmly sat back and waited for prices to drop in the morning hours in order to begin buying in force throughout the balance of the day. Yet, when you look at the technical picture from May 2022 through the end of the year, it provided us ZERO signs that the market was about to scorch higher. But Wall Street knew differently. They simply needed to fill their coffers ahead of everyone else – and then the fun (bullishness) would begin. I wrote and discussed all of this in real time, saying that it would lead to a bullish advance ahead. I also said the CYCLICAL bear market was over. Most scoffed at this notion. Well, it led us to the resumption of the secular bull market advance – and the bears keep fighting the market’s strength. Those remaining bearish are paying the price and, in my opinion, the price will get steeper and steeper as the year marches along.
Dark Green Pure Accumulation Phase
We’re just scratching the surface on this 2023 rally. Make no mistake about it, we’re going higher – a lot higher. I follow where the money goes and couldn’t care less about what the talking heads are saying. IGNORE THE MEDIA and FOLLOW THE CHARTS. The big Wall Street firms are betting their money on a significant rally ahead. You can do what you like, but I’m following these firms. The manipulation and ridiculous conflict of interest on Wall Street is quite apparent to me. These big firms like Goldman Sachs invest their own money and their wealthy clients’ money. Then they parade their “influencers”, err I meant to say “analysts”, out into the media to tell everyone what to buy and sell and to tell us how low the market is going to go and how poor earnings this quarter will be. Meanwhile, their market making unit does the opposite of what those influencers (oops, my mistake again) are telling us to do. It’s quite the racket. But guess what? It’s our system and it’s not going to change. So you can either be manipulated by it or you can profit from it. I choose the latter for myself and for our EarningsBeats.com members. Ready to see how the cumulative intraday trading performance looks for 2023?
- Opening gap: -6.28
- 9:30-10:00am: +19.07
- 10:00-11:00am: -4.31
- 11:00am-4:00pm: +66.43
Hhhmmmm, a little different picture, don’t you think? The first part of the day is still the weakest part, but it’s nothing like we experienced in 2022. The manipulation is ending. Why? Because Wall Street firms have filled their stockings and they’d like to thank everyone for selling them shares so cheaply in 2022. As the QQQ set a 52-week high last week, Wall Street’s profits soar. Welcome to Wall Street’s Hunger Games!
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Tom Bowley is the Chief Market Strategist of EarningsBeats.com, a company providing a research and educational platform for both investment professionals and individual investors. Tom writes a comprehensive Daily Market Report (DMR), providing guidance to EB.com members every day that the stock market is open. Tom has contributed technical expertise here at StockCharts.com since 2006 and has a fundamental background in public accounting as well, blending a unique skill set to approach the U.S. stock market.
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