Over the years, I have mentioned the “Plunge Protection Team” when markets looked bad and in need of help.
It’s existence has been denied by every elected official but the rumor persists. Its existence was originally postulated by none other than the legendary stock market analyst Richard Russell.
Many other respected analysts also believe it was created after the great stock market crash of 1987. At that time the regulators wanted to implement controls that would prevent a meltdown of that magnitude from happening again so they implemented restrictions that would force the market to shut down if drops of certain magnitude happened.
The theory was that this would allow cooler heads to prevail and prevent a snowball effect. And to a certain extent they did help. But it is theorized that this wasn’t enough protection so the “Plunge Protection Team” was created.
Basically the “Plunge Protection Team” would do for the stock market what governments have been doing for their currencies for years. If they come under too much selling pressure the government starts buying and creates some support until other buyers appear.
Well, back in March of 2003 the price action of the market was extremely strange and is is considered by many to be the work of the “Plunge Protection Team” . It seems that one day in March in the middle of a prolonged downtrend the S&P jumped up over 35 points in a single move.
Over the next year the “Plunge Protection Team” would occasionally juice the market. For those in the know the pattern became obvious. The S&P would jump 3-5 points then move sideways for 5 minutes then jump another 3-5 points then move sideways again and finally a third move of 3-5 points.
By June of 2003 these interventions became fewer and fewer until the market got its own “legs” and the interventions by the “Plunge Protection Team” became unnecessary.
Recently, Max Whitmore of NewsMax.com says that he has begun seeing that same pattern again. If that is true the “Plunge Protection Team” may have drawn a line in the sand and put a bottom under the market.
