More on the PPT

Plus, Addressing Our Positions

By Bryan Bottarelli
Monday, February 25, 2008 9:53 AM EST
Mon, 25 Feb 2008 14:53:00 GMT

Dear Bottarelli Research Member,

Following Friday’s late-afternoon alert titled “Now That’s Fishy,” I received a good deal to customer requests to explain the PPT (Plunge Protection Team) that I speculated was the cause for Friday’s surprise upside pop. Here’s a quick run-down…

The PPT is officially known as the Working Group on Financial Markets. This group was created by Executive Order 12631 and signed on March 18, 1988 by Ronald Reagan. It includes influential leaders such as:

The Secretary of the Treasury (who is the Chairman of the Working Group)

The Chairman of the Board of Governors of the Federal Reserve System

The Chairman of the Securities and Exchange Commission

The Chairman of the Commodity Futures Trading Commission

This group was created in response to Black Monday, which occurred on October 19th 1987, to give recommendations for legislative and private sector solutions for "enhancing the integrity, efficiency, orderliness, and competitiveness of financial markets and maintaining investor confidence.”

But unlike this desired quote, the actions of the Working Group often times manipulate the U.S. stock markets by using government funds to buy stocks, or other instruments such as stock index futures. For example, at critical market breakdown points, the Working Group will often times will place substantial market buy orders to artificially “support” these critical breakdown levels, which results in a key market reversal. From a technical perspective, it completely blindsides any trades and are entered in response to preceding market conditions. And because of these actions, the Working Group is often referred to as the Plunge Protection Team.

*NOTE: The actual term “Plunge Protection Team” was originally the headline for an article in The Washington Post by Brett D. Fromson. It was published on Sunday, February 23, 1997 and his original draft did not include the term “Plunge Protection Team.” As it turns out, this term was later added by a copy desk editor as a sensational nickname for the Working Group. And it stuck.

A good example is this came last Friday. Just as the Dow as about to break into a new low of the day, the markets reversed course and turned a 140-point loss into a closing-day 90-point gain. Like I mentioned, you never see a major buyer come into the markets with 30 minutes to go before the close on a Friday. A 230-point market swing in less than 30 minutes looked fishy to me, and that’s why I speculated that the PPT (masked by rumors of bonk bailouts) was behind the move.

INDU

Now here’s the thing. When you are faced with a situation like this, where markets appear to be manipulated, the smart thing to do is decrease your trading exposure and carry as close to an equally-balanced ledger as possible. That way, you can profit off any intra-day market volatility by taking quick “sniper” profits on both your upside calls and your downside puts. To fulfill this tactic, let’s decrease our put exposure by closing our APC March 60 Puts (APC OL).Sell this position now, and the result will leave our ledger with PTR March 140 Puts (PTR OH), AGU March 75 Calls (AGU CO), and NILE March 40 Puts (JWU OH).For the time being, let’s maintain these three positions, and I may look to equally balance out the ledger by adding one new upside call as the trading day progresses. But until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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