Is It All Just a Scam?
The more I study the markets, the more I wonder what kind of shenanigans are going on behind the scenes.
Here’s an example:
Before Labor Day, analysts were saying that Fannie Mae and Freddie Mac were rock solid. They were also promoting the idea that the financial underpinnings of the world economy were stable and sound.
Unfortunately, investors believed the analysts. They started buying up stocks based on analysts’ opinions, which ultimately raised the price of these stocks.
Looking back, we can see that investor confidence was unfounded; it was based on opinions and not facts.
Here are some of the news clips that were being peddled to investors in late August 2008:
August 27th - Shares of Fannie and Freddie Mac have rallied this week on speculation that the government-sponsored enterprises might not need a bailout that could leave common shares worthless.
August 29th - The past week has brought a dramatic shift in sentiment about the viability of Freddie Mac and its fellow government-sponsored entity Fannie Mae as analysts asserted that the mortgage giants have enough capital to wade through the housing and credit muck at least until next year. The stocks responded accordingly, with Fannie up about 50% at $7.55 and Freddie up 85% at around $5.20 this week alone.
Fannie and Freddie shares have recently fluctuated with rumors and speculation over whether or not a government bailout was imminent — a development that would likely wipe out shareholders. Now that those fears have abated, it might be a perfect opportunity for Freddie to fulfill the commitment it made to the Office of Federal Housing Enterprise Oversight and raise some capital.
In the quotes above, it is important to note that “analysts asserted” Fannie Mae and Freddie Mac would have enough money to survive “at least until next year.”
Obviously, this wasn’t a true statement. Mere days later — right after Labor Day — all hell broke loose and Fannie Mae and Freddie Mac went into a tailspin.
If you look at the chart, you’ll see that Fannie Mae (FNM) had a nice run-up at the end of August. From August 20 to August 28, the share price nearly doubled. Then, on September 8, the share price plummeted from $7.04 to $0.73 per share. Freddie Mac (FRE) shows a similar pattern during the same time periods.
So here’s the question. Were the analysts lying? Were they acting as the hired henchmen of Wall Street titans? Or were only a handful of analysts lying while the others followed along blindly?
Regardless of the answer, this is proof that we cannot accept what analysts say at face value. In fact, I recommend that you NOT listen to analysts at all.
Rather, listen to charts. Price and volume don’t lie. They tell you what happened — and hint at what might happen in the near future.
Price and volume create patterns. Not all patterns are tradeable. But many patterns ARE tradeable. With the right patterns and set-ups you can be reasonably sure of a winning trade — no matter what the analysts are spouting off.
What do you think? Do you agree or disagree?
Best regards always,
A.J. Brown
maria @ 6:13 pm:
hi aj,
that is the best advise anyone can give a wanabee trader.
wall street only has its own interests at heart, as traders we should do the same.
learn to read your charts accurately and the rest WILL follow.
cheers
mwrcxa
Brad @ 6:35 pm:
Agreed. Sorry about last night.
Larry Lavaty @ 6:50 pm:
Sound advice.Often times it appears analysts have a different agenda. Following chart patterns provides a better opportunity.
Eduardo @ 6:50 pm:
Dear AJ,
Good advice. I agree that most people have a tendency to be center of attention in any areas. Could you be one of them?
I hope you don’t feel offended but I would like to know what drives you to “teach others”.
Regards
Marje @ 7:59 pm:
I never have trusted the analysts. I trust myself and prefer to make my own mistakes. I also believe that the market is heavily manipulated. I read a article today about big money being put to work for a Obama win of the White House. With electronic trading and deep pockets on the Obama team I believe it.
gerard @ 8:31 pm:
You just hit this Fannie Mae and Freddie Mac right between the eyeballs and let us include those yoo-yoos in Washington, especially the one from Massachusetts who got paid millions to take home and blaming everybody else.Yes sir, you ar so right and to the point:PATTERNS and SETUPS are our most reliable avenues.Thanks!!
Steve Butchart @ 8:52 pm:
Hi A.J
If your training programme is half as accurate as your your inferences of ANAL_CYSTS being less than truthful, then sign me up !!!!!!
zafar @ 9:07 pm:
Dear Brown,
I do agree 100% with you.
I never trust analysts and tips provider as the are professional lierssss.
Philip @ 9:29 pm:
I agree.
Eric Holmlund @ 12:06 am:
I do believe that in many cases it’s a scam. In other cases, it’s not a true “scam” but rather a systematic ploy designed to make money for the elite.
I’ve seen this happen so many times lately. MM’s will load up on a stock. Analysts will issue an upgrade (even though the stock doesn’t deserve it). Retail traders will jump on the stock and run it up. MM’s will sell at the top of the rally and then short it to heck. It’s all designed for the MM’s to take money from the masses like sheep going to the slaughter.
Are there a few crooked analysts? When you consider the amount of money at stake, I’d have to say yes.