Monday, June 4, 2012

How to manipulate KLCI?


Manipulation of the Malaysian Stock market
There is an interesting development in the KLCI. We suspect that the KLCI had reached an intermediate TOP at 1580 which is located in the 50 days Moving Average. We expect the KLCI to correct downwards next week to test the recent low of 1526. Since the MA20 is already below the MA50 days since 14/05/2012, the KLCI is still considered to be bearish bias.
What we saw for the past weeks was the Malaysian Plunge Protection Team (PPT) working overtime just to maintain the index in positive territory. They have been manipulating the index by last minute buying of large cap index linked stocks like Telekom Malaysia, Maybank and Tenaga Nasional. However further effort to support the market will depend how deep the pockets of the PPT. naturally these large cap stocks have very big weightage on the KLCI. A single bid movement each way can contribute to a 1 point movement in the KLCI. So by concentrating their effort to manipulate these few counters, they are able to control the direction of the KLCI.
Create a ‘feel good’ and conducive environment
As far as we know the current attempt to support the stock market is the attempt by the authorities to show the public that our economy is still strong and can withstand any external shocks. It will help create a ‘feel good’ feeling among its people as the 13th General Election is nearing.
As for any indication, history proves that the manipulation of any market will have its limits. You can only support the market for so long and further buying will negate any positive effects that can be derived from supporting the market. This is because the Law of Diminishing Returns also applies to Stock Market manipulations. The previous Malaysian authority’s attempt to corner the Tin market and another foray into the manipulation of the foreign exchange market only end up in tears. The Malaysian Government lost more than RM 15 billion on the Tin market while its attempt to manipulate the Ringgit resulted in more than RM 26 billion in foreign exchange losses.
Historical examples of failed market cornering include The Hunt brothers during the late 1970s to early 1980s. The price of Silver was pushed up from $11 an ounce in September 1979 to nearly $50 an ounce in January 1980 by the Hunt brothers. At one time they are holding about 50% of the rights to deliver Silver during their manipulation of the metal.
Another example will be car manufacturer Porsche’s attempt to corner Volkswagen’s shares. As a result Volkswagen’s share sky rocketed and briefly became one of the most expensive companies in the world. However the attempt was failed due to the naked shorts performed on the company resulted in the departure of its CEO and Financial Director.
As a result we will foresee that any attempt by the PPT to manipulate the Malaysian stock market will not last long and will be futile. It will end up in tears and we will see a major correction in the Malaysian Stock Market very soon.