JPMorgan Explains What Causes The Market's 3:30pm Ramp

Tyler Durden's picture

While over the past several years many have observed the peculiar last half-hour ramp in the stock market, leading to a variety of amusing knock-off phenomena, perhaps nowhere was it more noticeable than what happened on the last two Friday afternoons, and especially the most recent one when with the market down notably going into the last 30 minutes of trading, the Dow soared in the last minute, turning green with 7 seconds of trading left, continuing the streak of 11 consecutive all time highs, the longest such stretch since early 1987. 

While traditionally the "serious" media has ignored this odd last hour/minute/second ramp, on Friday even Bloomberg was compelled to chime in.

It isn’t over till it’s over. Especially on Friday. For the second time in two weeks, a final-hour ramp in the S&P 500 turned the index green for bulls, with the benchmark equity gauge jumping 6 points in a little over 30 minutes to close with a 0.1 percent advance and help preserve a fifth straight weekly gain. A similar spike salvaged gains seven days earlier.

 

 

“The machines kicked in and brought all the averages positive at the close,” Andrew Brenner, head of international fixed income for National Alliance Capital Markets, wrote in a note to clients. “We think markets move big time next week off the Trump speech Tuesday.”

 

After the financial crisis, traders were afraid of bad news coming out over the weekend. Now it’s the other way around, according to Chad Morganlander, a money manager at Stifel, Nicolaus & Co. in Florham Park, New Jersey.

Maybe it was the machines, maybe it was hedge funds covering (although as we reported earlier, they have actually been selling to retail investors in recent weeks), maybe it was a last minute tap on the shoulder by a certain central bank's trading team.

However, what is known is that these farcial moves, which are draining what little confidence in a "fair and efficient market" remains, have attracted the attention of none other than the best quants at JPMorgan.

Earlier today, we showed how, according to JPMorgan (and BofA), the recent market levitation has been entirely on the shoulders of "animal spirited" retail investors plowing money into ETFs, coupled with CTA's forced to cover into a gamma squeeze, even as hedge funds and institutions have been selling to retail investors. Well, as it turns out, the mechanics behind the recent move higher also explain such observations as Friday's last second levitation.

As JPM's Nikolaos Panigirtzoglou explains, "the picture we get is of institutional investors either lowering their equity exposure YTD or keeping it unchanged. This apparent unwillingness by institutional investors to raise their equity exposures YTD reinforces the argument that it is retail rather than institutional investors that most likely drove this year’s strong inflows into equity ETFs and as a result this year’s equity rally. And the fact that retail investors use passive rather than active funds to express their bullish equity views has important implications."

The main implication is that this shift towards passive funds is elevating the importance of retail investors in driving markets. And retail investors’ sentiment is transmitted to markets more quickly via passive funds. This is because these passive funds have to rebalance by the end of the day, different to active funds that have the discretion to wait before they deploy their cash balances.

In turn, JPM adds, this end of day rebalancing means that equity trading becomes even more concentrated at the end of the day as passive funds grow. Passive funds typically rebalance at the end of the day because transacting at the closing price better aligns the performance of passive funds to the performance of the index they track.

And this end of day trading concentration is reinforced by the secular reduction in market depth and liquidity since the Lehman crisis. As market depth declines, the execution of large trades is postponed until the end of the day when more trading takes place, reinforcing the end of day trading shift induced by the expansion of passive funds. To get a sense of the underlying market transformation, YTD 37% of the NYSE trading volume took place during the last 30 mins of trading.

So the next time someone points a finger at the market's last 30 minute levitation, one very likely culprit is the retail investor whose choice of ETFs as a "long-instrument", leads to such ramps in the market as those shown above. It also means that as per the parallel JPM analysis, the institutional money continues to sell to the ultimate bagholder: Joe Sixpack.

As a side note, any time institutions start dumping to retail, whether with last minute ramps or not, the market's inflection point has always been just around the corner. We see no reason why this time should be any different.

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knukles's picture

It will ramp (up) if all the end of day trading is purchase dominant therby bidding up proices offsetting fund cah inflows.
Otherwise .....
Sounds a tad thin to me.  Anybody compared the ramp activities against the IMI's (or other reputable) funds flow data?
Just askin' about any hard data correlations or lack thereof.

philipat's picture

This is one possible explanation. The other is a different small fund known as the ESF?

PlayMoney's picture

Maybe JPM could also take a crack at why virtually every mining stock sold off, right after a big volume spike in GLD in the middle of the day? On a big PM up day? Maybe the large GLD volume spike got all the algos sexually aroused?

philipat's picture

An explanation that JPM in particular is unlikely to use: they have no physical metal left to fight the futures markets (and are already at record short silver levels) so they can now only fight paper with paper?

The alarming thing, though, is that since the Deutsche Bank "scandal" (which only implicated European Banks because, as we all know, the US Banks are all honest as the day is long and are all doing God's work) the manipulation has become even more obvious? They clearly don't give a shit what anyone thinks and that can only be for one reason; they are acting on behalf of the BIS/CB/ESF complex which is above the law or, more accurately, acting WITHIN US law. Our only hope here is that the physical markets overrun the paper markets?

phatfawzi's picture

Since we all know it's a joke of a market, can you just rest my account back to where it was. 

PlayMoney's picture

More likely the guy at the Feds trading desk hitting..."ENTER"

2rigged2fail's picture

Bingo PPT clicking market oder on AMZN AAPL and the other undervalued names.  Fed will own every major company in 5 years.  

PlayMoney's picture

Not sure why they are surprised at this ramp. Every down day it ramps into close. I buy at 3:30 when its down and come back a few minutes before close and sell. Did this friday, went to the shop with girlfriend, 10 til told her i gotta go sell when it hits green. Sure enough, she thinks i'm a market guru. She doesn't realize i'm really a dumbass. 

slingshot's picture

Seems like a bunch of BS.  Anyone who watches the eminis knows what controls the markets.  Huge blocks of ES went go off at the eod squeezing whatever shorts there are.   Retail doesnt buy 3-4k blocks of ES at the hod.   Its obviously a constortiium of banks or central  banks that is driving the markets higher.  It the logical result of the $2.4T annual pace of QE by ECB JCB and Chinese Central Bank, free money printed has to find a home so its equities.    The retail argument is a joke.

Born2Bwired's picture

Yes and more specifically retail traders don't buy about 2700 contracts on the Offer using iceberg techniques, then suck up another 1000+ at the bid then launch the market upward about a minute later. this is what happened friday around 3:18 to 3:20. the market leaped up about 2 1/2 points on a five minute bar after there being almost no activity for seemingly hours before. but it was started not by anything looking like retail. huge blocks continued after this initial launch moving everything upward into the close, when a lot of it was let go as well in huge blocks much higher. 

Joe sixpack in an ETF not so much.

tgatliff's picture

Why didnt JPM ask if it could be the BOJ buying ETFs?  We know they are buying US stocks and also know their fondness for ETFs.

NobodyNowhere's picture

Hogwash.

Nothing happens in the market unless it profits Big Money.  And they won't EVER tell you how THAT works.

Seen it all since 1979 .. equities, options, futures, forex.

It's the mother of all casinos of all time, run by bankster elite who own lawmakers, the treasury, and the Feds behind the facade of free-markets.

francis scott falseflag's picture

 

They know the market will close in half an hour and the prices they paid will be the final ones for

the day and reported that evening by the MSM as having been buying by knowledgeable investors.

 

THE MSM IS AS GUILTY ON WALL STREET AS THEY ARE IN POLITICS 

 

Edit** The market closing in 30 minutes, the rampsters, with enough buying power, can bring back

a seriously down day.  Even provide the bulls with a ONE DAY REVERSAL.


buzzsaw99's picture

passive funds typically rebalance at the end of the day because transacting at the closing price better aligns the performance of passive funds to the performance of the index they track...

that ain't no bullshit right there bitchez. i got fukked so many times trying to play those funds. especially back in the volatility days i'd be on a two week run and watch half of it fucking evaporate in the last two hours of the day i was trying to lock in profits. i guess everyone else got sick of that shit too and now they wait until five minutes before the close. (even so, they still got screwed trying to buy that little pos dip at the last minute on friday. haha.) it also seemed that every time i got out the frikken thing would be up 15% before i'd get back in waiting for a decent pullback. i caught some decent runs too but fuck it, i'm never selling anything ever again.

GRDguy's picture

Re-balancing is newspeak for manipulation, pure and simple.

nope-1004's picture

Sounds like Blythe Masters trying to explain a few yrs back how JPM was a market "facilitator" in PM's, and had no personal interest.

ALL bankers lie.

DEMIZEN's picture

no more bad days. the carnage risk is just too high. from now on dow will be always up no matter how bad the news or how bizzare the explanations. seriously,  mark my words.

PersonalResponsibility's picture

"As a side note, any time institutions start dumping to retail, whether with last minute ramps or not, the market's inflection point has always been just around the corner. We see no reason why this time should be any different."

Rrrriiiggghhttt, been around that corner for how many years now?

 

BlueHorseShoeLovesDT's picture

It gave me a nice profit on an S&P spread, so I will not complain

Rubbish's picture

Banks call Yellen for a Payday loan everyday now until she hits 30,000.

Francis Marx's picture

   It might be 1929 all over again.

 The bubble was Europeans getting their money out of their countries because they saw the writing on the wall.

 Hence it came into our markets.

brooklinite8's picture

I don't believe any word that comes out of these asses. Why not some one gather the data of the brokers, trades executed during that 30 min for few weeks. Slice and dice them for a trend and I am sure any idiot can come out with an answer. The culprit lies in the data. Its farcial that these guys are showing some power point presentations in this big data world when in turn they have the data. Its just they don't like to give you the answer.

Racer's picture

How can they be 'passive' if they do that on a daily basis?!

Ajax_USB_Port_Repair_Service_'s picture

ETF's are a great way to invest with little or no risk. The more ETF's you buy, the more money you'll make!

ETF's are a 'sure thing'. Just look at the charts! They can't go down in value - ever. Permanently high plateau.

This time is different. Forget what happened to ETF's in the past. Permanently high plateau.

Peter41's picture

JPM is a vast enterprise of casino croupes waiting for the next schlemiel to plunk down some hard earned cash.

 

For example, they hold a vast hoard of physical silver in their vaults, while playing the paper gold and silver markets from the short side in the CME and other venues. Check out GATA's lawsuit against them and other banksters. Deutsche Bank, one of the co-conspirators, ended up settling out and divulging a wealth of communications that will prove the conspiracy. The power elites will figure out a way to escape any consequences, never fear, the game is rigged.