How to Trade POMO Manipulation
Courtesy of Chris Vermeulen
The uptrend is to be the focus of trading positions until a down trend is actually confirmed via price and volume action. The SP500 was very close to reversing down this week but with the POMO’s (permanent open market operations) scheduled largest injection of money for February of over $5 billion dollars sent stocks soaring jamming stocks back up into its uptrend.
Take a look at the normal daily injections and then look at Feb 27th…. [Settlement date – money from Fed to the Primary Dealers, available for stock market buys.]
SP500 Futures 10 Minute Chart Zoomed Back 48 Hours…
SP500 Trend – Green, Orange, Red candles indicate trend direction
Short Term Trading Conclusion:
Following the bigger underlying trend of the market along with the big money will keep you on the right side of the market more times than not. My trading strategy which is now programmed into my trading system clearly tells me the current market trend, entry signals, profit taking, stop adjustments and exit prices.
Creating a proven trading strategy which works in all market conditions and having it programmed to do 95% of the analysis keeps my trading emotions in check, saves me time and money, and keeps things simple which is the key for long term success. So keep your eye on the POMO’s injection schedule each month for days to focus on long day trades or entry points for swing trades.
via ETF Trading Gold Newsletter » How to Trade POMO Manipulation.
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Follow-up by Ilene
Keep in mind, correlation is not causation, but it has been our operating theory that as long as the Fed is printing, printing, printing, the stock market will be trending higher, higher, higher….
Federal Reserve Bank of New York: POMO – The purchase or sale of Treasury securities on an outright basis adds or drains reserves available in the banking system. Such transactions are arranged on a routine basis to offset other changes in the Federal Reserve’s balance sheet in conjunction with efforts to maintain conditions in the market for reserves consistent with the federal funds target rate set by the Federal Open Market Committee (FOMC).
Urban Dictionary: POMO – The mechanism by which the Federal Reserve manipulates the stock market. It is no secret that the Federal Reserve, and its now semi-daily interventions in market liquidity via POMO, is rather hell bent on creating the illusion that the economy is alive and well courtesy of a ramping stock market.
Previously, Zero Hedge warned that:
Shorting the Market on These POMO Days May be Hazardous to Your Health
Courtesy of ZeroHedge
The central planner's policy tool formerly known as "the stock market" has experienced unprecedented levitation in the past two months on the heels of what, as shown previously, is some 38 countries concurrently pursuing negative interest rates and monetizing their debt, while flooding the market with record liquidity.
Furthermore, as we said back on January 9, now that the Fed is back to full scale unsterilized market injections in the form of good old POMO, anyone who wishes to challenge the Fed directly may want to reconsider doing so via stocks (buying precious metals on FRBNY, BOE and BIS-facilitated 8:00 am crashes is always encouraged). Recall what we said on January 9: "it may not be a good idea to be short stocks on any of the [POMO] days listed below." Below is a chart of what happened next: it shows the stock market's performance and whether or not there was POMO on that day.
In brief: of the 15 POMO days since January 9, the market was up 13 of them, or an 87% hit rate. Those who did not short January POMO at least did not lose money.
And since Goldman's Bill Dudley was kind enough to release the February POMO schedule, during which the Fed will add another $44 billion to Primary Dealer dry powder, not to mention some $40 billion in MBS, and since there is no stock market and hasn't been since 2008, we urge everyone to study the POMO table below and to not short the S&P on the highlighted POMO days unless they absolutely must. Of course, regular readers will know that since the summer of 2009 our active advice to everyone but the most habituated gamblers, has been to stay out of the central planner's policy tool formerly known as "the stock market" entirely.
February POMO schedule (via Fed):
