29/10/2010 – The Fed and “Plunge Protection Team”: Are They Manipulating Stocks?

You will find many intriguing Q&As at EWI’s Message Board.
We offer it as a free way for our Club EWI members and subscribers
to interact with EWI and the Socionomics Institute’s experts.
We strive to answer every Message Board reader, and publicly
post the best Q&As.
By far, the most frequent question we’ve been asked recently
is:

“What is your take on the persistent internet chatter
that the Federal Reserve is holding up the stock market via
QE2, POMO, etc.? How can stocks ever decline again if the Fed
is in control?”

We have several active Message Board posts that touch on “market
manipulation.” But here is an eye-opening chart that will
help shed more light on this issue.

EWI President Robert Prechter published this chart in his October
2008 Elliott Wave Theorist. Review this chart carefully.
For too many investors, the crash of 2007-2009 is becoming a
hazy memory. And almost no one in the mainstream financial media
talks about the utter panic in the markets in September-October
2008, the worst part of the crash.

If you think back to that time, you may remember that the Federal
Reserve and U.S. government took many aggressive steps to help
stop the collapse. Every time they would announce a new intervention,
the market would cheer. Result? Prechter’s chart gives an unequivocal
answer:

[+] CLICK TO ENLARGE

As you can see, announcements of bailouts, unlimited credit,
bans on short sales, etc., were powerless against the biggest
stock market collapse in 76 years. The DJIA kept sliding. It
didn’t stop until March 6, 2009 — after it had slipped below
6,500.

So: Is the Fed and the “Plunge Protection Team” engaged
in market manipulation? You can browse EWI’s
Message Board for some answers, but one thing is clear: When
stocks were crashing two years ago, few dared to suggest that
the Fed was in the saddle. Bob Prechter puts it best:

“When markets go up, the Fed seems to be in control;
when they go down, it seems out of control. But the control
aspect is an illusion.”

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