Who is Buying Driving the Market Up at the End of the Day?

Let me first say, I don't know. So if your looking for a concrete answer you can stop reading now. This does not happen every day but has happened alot from the beginning of April and classically occurred yesterday.

I am addressing this issue because I have received alot of questions concerning it.

Their are two potential candidates who are pounding the futures higher, some government entity or a large (or group) institutional fund(s). (there may be other possibilities but those in my mind are the most likely)

In general I work very hard not to be a conspiracy theorist and argue that the government is trying to manipulate something. Most people who fall in this camp are arguing this as an excuse because there on the wrong side of the trade. The market is going up and they are caught short. So they find an escape goat. Even if they are right, it is dangerous psychologically because it prevents you from assessing the situation and considering that you may be wrong. An investor can become mentally locked in and just blame an invisible hand missing an actual change.

With that said, I also do not cast a blind eye that the government can't be involved like many talking heads on CNBC want to do. It would make complete logical sense if they were. Think about it. They are trying to manipulate (and failing) the biggest markets in the world. They are open and honest about this. What markets? The treasury and mortgage market. They are buying to try to keep rates down. This market is multiples the size of the equity market. The government has always been involved in manipulating the market in some form or fashion so why could they not be in the futures market? Investors who immediately dismiss such a possibility are equally as blind as those who automatically assume it has to be the government. Remember the Fed and the Obama administration has gone on a full blitz to try to convince everyone that everything is okay. They are trying to play a game of perception change and so what better way to do that then for the equity market, which is flashed on every local news channel at the end of the day, to go up.

If it is the government, the game will end. Major market manipulations always end in tears but they can last a long time.

If it was the government, what vehicle are they using? My guess is it wouldn't be the Fed but some entity underneath the Treasury. My guess is it would be more computer based so very few people would have to know about it. My guess is it would be programmed to kick into buy under certain circumstances. Alot of speculation centers on some TARP money that may have been diverted away to buy S&P 500 futures.

What if it is not the government? That is possible and I would say almost equally likely. Big funds, think big pension funds, macro funds, $20 billion plus hedge funds, often times get exposure through S&P 500 futures and then will work through buying individual stocks or indexes later. So if one or several very large funds decided they are now bullish on equities and want to change to overweight from underweight over several months this would involve billions upon billions of dollars. They would try to allocate additional money every day and would hit the futures market to make sure they got this exposure. As volume has disappeared they are becoming a bigger and bigger part of the market forcing these late surge spikes.

In my mind, one of the biggest arguments against big funds is the trading appears sloppy. This guys should have in place the ability to mask big purchases and get good prices. These spikes at the end of some days appear sloppy with more the purpose to move up the markets versus buying at a good price.

Regardless, it doesn't matter from my perspective. If it is truly manipulation, I believe it will end in tears so I try not to worry about that scenario. I try to worry about managing my risk and not lose to much money since I have a very short bias. At the same time I try to determine if I am wrong. Is there really something underlying the the system that supports more and more buying.

Be aware of the possibilities, understand what is going on but focus long term on the fundamentals. At the end, even the strongest government in the world can't override that.