Many analysts, myself included, refer to the "Plunge Protection Team" (PPT), and I am often asked what it is.
To begin, the PPT does not officially exist, but we often see their fingerprints all over the place. What is generally believed is that the government (Fed? Treasury?) and/or major financial institutions (the ones who do large amounts of program trading) sometimes conspire individually or together to support the market in order to prevent or stop a major crash. This can be done when "somebody" begins buying large amounts of index or stock futures at a time when the market is declining and is giving signs that the bottom may fall out. This buying can turn the tide by scaring the shorts and getting them to cover, and this can cause the market to reverse course, driven by a wave of short-covering, which in turn can encourage real buyers to come into the market.
While PPT action can have affect on short-term market moves, there is no evidence that anyone has so much money that they can change the long-term trend of the market. If it could be done, surely the bear market that began in 2000 would have been prevented. In my opinion, manipulation of the markets by anyone is undesirable. While it may provide temporary relief, the market must (and will) go to where it must go.
Not all upside reversals are the result of the PPT. The market can suddenly change directions in mid-crash simply because of traders taking profits when the market has gone "too far, too fast." But just imagine how quickly traders will cover their shorts if they are encourages to do so by sudden buying interest that appears out of nowhere. Whether or not there is an entity that fits the exact definition of the PPT, I don't know; but I do know that the government does manipulate the market openly through the action of the Fed, and I am paranoid enough to believe that, if there is a way for the government to secretly manipulate the markets, the government will do it. As for the major Wall Street institutions, they already manipulate the markets through program trading. Whether the two conspire together from time to time is speculation.
