Dave’s Daily: http://www.etfdigest.com

ALGOS FEAST ON RUMORS

May 24, 2012

‘The overall news continues to be dreadful. In China the PMI slumped again to 48.7 vs 49.3 in April. China says it will be aggressive with stimulus no doubt meaning QE. In the eurozone manufacturing and services fell to 45.9 vs 46.7 in April. It looks like recession for some economies.

Meanwhile in the U.S., Jobless Claims (370K vs 371 exp & prior 372) were unremarkable. Durable Goods Orders (.2 vs .5 expected & prior -3.7) missed expectations and were also unremarkable.

U.S. markets are now dominated by HFTs and algos seizing on bullish rumors. Just as Wednesday’s farce was led by rumors of eurozone deposit insurance (denied) and a rumored agreement between Hollande and another unnamed leader of more QE stimulus so Thursday’s declines were mitigated by the very same rumors. All this triggers program trading from algos, and for retail, is just another turn-off.

Gold (GLD) higher early gave back most gains late in the day. Oil (USO) was slightly higher on more Iranian (them again) news. The dollar (UUP) was once again higher and normally would see stocks head lower.

But, in a rumor algo driven environment logic quickly becomes a thing of the past since there’s quick bucks to be made.

Which path are we on as described below?

Okay, I rest my case.

Stocks again reversed course late in the day as the same rumors of eurozone solutions triggered algo buying action. Leading sectors were scattered frankly and we’ll view a few below.

Volume was lighter Thursday and you can readily see algo activity in the 5 minute SPY chart below. Breadth per the WSJ was mixed…’

QUIT JICKY JACKIN AROUND

{‘…After being down nearly 200 points markets turned around late as the infamous 2:15 PM Buy Program Express kicked-in (a few minutes late) and stocks rallied sharply off lows as another short squeeze began…’ }

May 23, 2012

‘A good friend of mine used to shout this when decision making became gridlocked. It’s apt for how the world is operating nowadays. There doesn’t seem to be any courageous or decisive leadership currently. Buying time seems the best leaders can do and hope they’ll get reelected hanging on to power. Then we start all over again.

I was sitting next to an older fellow yesterday at the gym. It was his first day of exercising after twin knee replacements. I asked, “Did you really need to have both done now.” “Damn”, he said, “Why do I want to go back through it again?” I think I did the same a long time ago with my wisdom teeth. The doctor said we could take out two now and do the next in a year or two. “Are you kidding me? “ I asked. “Take ‘em all out now and give me enough drugs to last a week or so.”

So those personal things aside, world leaders face the same choices—deal with these problems directly and quit kidding themselves and the people. If you really didn’t want to be president or prime minister why did you raise your hand?

Now there will be a Euro Summit this weekend with either a decisive Greek outcome (exit stage left?) or some other murky and gutless outcome. Whatever the decision, it will come with U.S. markets closed leaving it hard for most folks (unless you have an account in London and etc) to protect themselves after the fact. So, with little time before the extended holiday weekend many may hit the exits.

The U.S. has its own problems, poor leadership and a major election ahead. For now it’s a game of kick the can until after the fact. Then you know what will hit the fan in a big way.

Anyway market participants weren’t too thrilled about the road ahead either, at least not early. They bought the dollar (UUP) and sold stocks hard early and often on eurozone fun and games until rumors caused a sharp reversal. Bonds (IEF, aka “mattress money”) had rallied, commodities (USO, DBC & JJC for example) all fell then made a comeback. Gold (GLD) saw selling on the stronger dollar and then late day buying on QE hopes and other rumors.

Charles Biderman of well-regarded TrimTabs utters the impossible that China will be the next problem area and is already in recession:

After being down nearly 200 points markets turned around late as the infamous 2:15 PM Buy Program Express kicked-in (a few minutes late) and stocks rallied sharply off lows as another short squeeze began. Rumors spread that France wanted a heavy dose of QE, another suggested a broad bank euro deposit guarantee and Fed Governor Kocherlakota suggested more U.S. QE was available and…wait for it, the U.S. was nearing full employment.

After the close Hewlett Packard (HPQ) announced “adjusted” earnings which beat expectations even though it posted a loss. Along with it came pink slips for 27K employees. (Yeah, it’s the mean streets of corporate America at work.)

Volume increased in both directions. Was it wasted buying power? Or, just some insiders defending their positions and not believing in a euro breakdown? No one really knows. Breadth per the WSJ wound up inexplicably positive…’

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Dave’s Daily http://www.etfdigest.com ’HFT issues are thoroughly covered with HFT Alert founder Steve Hammer and myself in this video interview. It contains two parts: the first outlines HFT basics—how they work and their controversial impact on financial markets. The second part we discuss how traders can benefit or make money by using HFT Alert’s unique trading services. http://www.youtube.com/watch?feature=player_embedded&v=NzfmT4vGXZY [ ‘Off to the golf course’, indeed. Those are Mr. Hammer’s concluding remarks. Not because he’s a trader, but because he’s selling this ‘very functional in terms of what’s going on’ package. The truth is that even today, at lightning speeds, there are very few successful traders (as distinguished from investors, and there is a huge distinction, though much less so today)(over the longer term and is akin to the apposite old adage, ‘you can win a race but you can’t win at the races’). Indeed, some companies / brokerages employ them just for the volume / commissions they produce. Most telling, in this video, is the beginning wherein it’s explained that in literally a second(s), mere quotes can give rise to revenue (as with commissions, pieces of the action) which has to come from someplace. The problem is that ultimately, this ‘churn-and-action’ computer programmed action at ‘lightning speed’ is parasitic inasmuch as it is without any economic utility whatsoever in real economic terms as are commissions in ‘after-market stock trading’ (as distinguished from initial ipo’s) that are tantamount to a tax on the real economy; hence, the benefit to the frauds on wall street at the expense of and to the detriment of main street, taxpayers, and the populace in general, as we’ve seen and continue to see.