Buy the rumor and sell the fact.
Summer markets are characterized by light volume, low liquidity, and as Europe rotates into July/August vacation mode this will only make trading more volatile.
The magical 10,500 level in Dow cash has us catching our breath. There looks to be a nice double bottom on the daily charts at 9800. We’ve had a 700 point rally from 9800 to today’s high at 10,594. That tends to silence the doom and gloom bears faster than a care of pepper spray. They can pontificate all they want about the myriad of reasons why we shouldn’t have rallied.
Bottom line, it looks like we have entered new territory where 1000 point trading ranges within a business quarter have replaced what once had been a 300 point trading range… Three times the volatility, courtesy of high frequency black box trading.
In my opinion, this type of hyper conductive trading conducted by lightening fast programs will, in the end, have unintended consequences. We’ve already had the mini crash, which upon inspection, had no definitive isolated cause other than the tried and true “more sellers than buyers”.
I think in the next year or so we will have at least one if not two more “anomalies” such as the one that gave us the ten minute 1000 point swing we just recovered from.
On a smaller scale, mostly due to the limited capitalization of the entire markets, we are seeing these types of moves affecting commodities. I think we will continue to have large counter trend corrections, similar to today’s correction in the corn. 3 weeks of rally was wiped away when the computer puppet masters decided to run the weak shorts out of the market. The up trend will re- engage, but with less players on the right side. It will be interesting to check the open interest changes from today’s trade. My guess is that the open interest dropped, as relatively new longs were stopped out of their longs. Now that they have been relieved of their profitable positions, the market will return to its uptrend.
I mentioned yesterday that this is a market to buy via appointment. Expect 20 cent down drafts as the computer worms run the stops, looking to clear out the competition. Turn around Tuesday looms.
Buy dips and hold on tight. Be ware the hft systems. They exist to shake out the weak sisters.
What to do? Trade by appointment only. And have a pre-set sell stop to limit your losses.
Trade less. Be more selective. The computer worms are lurking to shake you out of your positions.
Buy dips. Look for a rally into the Jun 30th USDA acre report. By all accounts, its gonna be bearish. Look for a buy the rumor sell the fact trade.
If we come back after the July 4Th weekend, and the forecast is hot and dry, high frequency trade programs or not, we will rally like no body’s business.
If not, we will fall prey to the continued ‘slice and dice’ setting which is what trading has become in the brave new world of high frequency trading.
Good Trading.
Remember, if it was easy, politicians, talk radio hosts and all the Cliff Clavens in every neighborhood bar in the world would all be trading for a living.
