OK all you conspiracy theorists… dust off your aluminum foil hats and get out your J.D. Salinger novels. The government is going to push stock prices lower.
The U.S. Treasury is going to be auctioning off another series of 30-year bonds on February 9. If this auction goes off like the last three have, stock prices are in for a rough time. Stocks sold off ahead of each of the three previous 30-year U.S. Treasury bond auctions.
Now normally, I’m not a big believer in the government manipulation of stock prices. It probably does happen – just not to the extent that most of the folks in the “ham-radio” community think it does.
[ad#Google Adsense 336×280-IA]But let’s face it… The government needs investors to buy its bonds to help keep interest rates low. And what better way to encourage demand in bonds than to orchestrate a stock market selloff just ahead of a bond auction?
Think about this…
The government auctioned off $13 billion in 30-year bonds on November 10. The S&P 500 peaked above 1,280 just 10 days prior… and then bottomed at 1,230 the day before the auction.
In December, the S&P 500 hit 1,260 early in the month. Then it declined 4% in five trading days… bottoming at 1,210 on December 14 – the day the U.S. Treasury auctioned $16 billion in 30-year bonds.
January’s action was less obvious. As all conspiracy advocates know, it’s just like the government to try to be less obvious. Stocks didn’t decline much ahead of the January 12 auction of $13 billion in 30-year bonds. But the market did fall hard the morning of the auction.
So there you have it… Three auctions… three stock market drops.
Interest rates have been rising recently as folks have taken money out of Treasurys in favor of better returns in the stock market. But the Treasury needs to somehow motivate investors to bid for at least $13 billion in 30-year bonds on February 9. I can’t think of a better way to coax investors back into the Treasury market than to have stocks fall hard in the early days of February.
Normally, it would seem absurd to think the government is actively manipulating stock prices. But given all the shenanigans the Fed has pulled over the past three years – and given the stock market action just before the past three bond auctions – it’s almost absurd not to consider the possibility.
The market is already poised for at least a short-term pullback. Investor sentiment (a contrary indicator) is overwhelmingly bullish. Stocks are extended to the upside after rallying 5% already this month. And the Volatility Index (or “VIX”) is on the verge of reversing higher.
The upcoming Treasury bond auction is just one more reason – albeit a bit of a conspiracy theory – to be a little cautious with stocks here.
Of course, once we get the February 9 auction out of the way, the stock market rally can continue. And we can get back to more important things… like looking for President Kennedy’s real assassin.
Best regards and good trading,
Jeff Clark
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Source: The Growth Stock Wire