As it stands, the Democrats face a potential wipeout in November. If the stock market crashes in July, August and September, that would seal a Democratic defeat of potentially epic proportions. If I were in the Fed (or Treasury), and my compliant political lackeys were facing an electoral defeat of epic proportions, then I might conclude that a crashing stock market might be a wee bit more disruptive than would be good for the status quo.
Look how bearish and choppy the market looks now. If there was ever a market issuing a high, keening plea for massive intervention to stave off a collapse, it's this one:
This is one ugly chart. About the only bullish technical here is a mildly positive divergence in MACD, which is trending higher even as price declined to new lows. But divergences can continue for quite some time, and that one factor is not much of a bulwark against the tide of bearish technicals.
If I were in the Power Elite tasked with saving the Democrats from a complete rout in the November elections, I would choose to intervene right here, during the low-volume days of summer when intervention has more bang for the buck. I would also choose to intervene right here for technical reasons; if the market is allowed to notch a lower low and break the 1,000 level, then that would very likely trigger a cascade of selling that would be tough to stop.
A much better strategy would be to flood the market with futures buying to drive it up to a marginally higher high--that is, above 1,100. Technically, that would break the downtrend line and create the illusion (if nothing else) of a new uptrend.
Right now would be the perfect time to jab a big fat needle in the market because sentiment is almost universally bearish. Hobby Bears are piling in, grinning with delight at the prospect of such an "easy" trade (piece of cake profits, just go all in short!), while weak long hands are folding their cards and selling.
Nothing would stun this market more than a nice little 50-point rally in the SPX that forced overly-confident shorts to cover. Countering a massive wave of selling is almost impossible, but if the Powers That Be can nip this decline in the bud, so to speak, and force Bears to cover their shorts, then a more orderly decline can be arranged after the election.
Is it really too much to imagine Geithner et al. getting private calls from the White House along the lines of, "Guys, we could really use a hand here with the stock market." After all, propping up the market as a proxy for the U.S. economy has been the strategy all along, and the worst time for the strategy to collapse in a heap is right before the mid-term elections.
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