Will The Banks Buy The Dip?
Nearly every trading day since late August 2010 the dip in the stock market has been bought. Many professional traders and investors suspect that the large major banks buy the major stock indexes just before the Federal Reserve Bank initiates their daily permanent open market operation (POMO). It is suspected that often the large major banks such as J.P. Morgan Chase and Co.(NYSE:JPM), Bank of America Corp.(NYSE:BAC), Wells Fargo & Co.(NYSE:WFC), and Citigroup Inc.(NYSE:C) simply buy the market leading stocks such as Apple Inc.(NASDAQ:AAPL), Exxon Mobil Corp.(NYSE:XOM) and others which help to inflate the stock markets and cause rallies nearly every trading day.
Traders and investors should also realize that the large major banks have not taken a trading loss in months. This has made trading very profitable for these large major institutions. These large financial giants can also borrow capital or cash from the Federal Reserve Bank at zero percent. It has also been rumored in the trading world that these institutions are also using very high leverage for trading that is comparable to the pre-financial crisis levels back in 2007 and 2008. When you think about it, what risk are the large banks really taking? They will just be bailed out by the government if something went wrong.
The big question that many traders and investors are asking today is will the banks buy the dip again? The down trend in this stock market today is severe and very sharp. The decline is broad based and many market leaders have dropped sharply. The financial stocks which have lead the stock market indexes higher since late November 2010 are selling off violently. Today does not look as if the stock market will stage a comeback, however, if there is one thing that we have seen in this market it is that anything can happen at anytime.