Since the financial crisis of 2008 the federal reserve and government of the united states of America has implemented a plunge protection team, whose open market operations/manipulations insure that the markets never again experience a sharp drop and violent unwinding of a fragile ecosystem.
Many times in this bull market just when it looked as if price was about to fall. Bears would be greeted with a seemingly magical gap up of massive proportions. Just today, friday from 'goldilocks' jobs numbers or whatever 'reason' the dow industrial average gapped up 200pts!
The real reason was that the market was starting to test important technical support levels. A breakdown was looking possible and the way the credit expansion system is set up right now, prices cannot ever drop, or else certain disaster awaits!
The stock market, the headline dominating arena where speculators commune in droves has its place but is a spec of dust compared to the much bigger stadiums of capital flow: the Bond and Currency Markets.
The interplay between markets complicated and long winded if you want it to be but just know that each directly and inderectly effects the other.
Western governments have been using the bond market to create currency from debt to finance operations. This credit creation system has been abused to excess. With diminishing returns.
What has happened is bond prices have been bid up in a 30yr Bull Market, resulting in the dropping of yields to such a low level that in most of Europe yields on bonds are actually negative. So in other words if you are buying a bind with a negative yield, you are paying for the priviledge of lending money. This is an unatural bastardization of the bond market that is the direct result of extensive central bank intervention into capital markets.
The derivatives that depend on this bond bubble to keep inflating are mind boggling. You get into shadow banking, carry trades and the repo market and you are dealing with figures so large my mind can barely comprehend.
It was derivatives that took down the market in 2008. Nothing has been done to adress derivative use. In fact the opposite phenomena has occured where there is now more leverage in the system than ever before.
The stock market is imortant for me as a speculator. It is an arena that is easily accessable to me but it is not the main arena. When the tide turns red in the bond market, look out! That means that the powers that be have lost control and a financial armageddon many times more levered than 2008 is unfolding...