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Daily State of the Markets Good morning. I am fairly confident that I have made my disdain of high frequency trading (HFT) fairly clear over the past year or so. But just in case I haven’t, let me say that I firmly believe all the HFT front-running (yea, I said it, it’s front running and for some reason the big boys with their uber-fancy computer toys are allowed – heck, even encouraged – to do it), the algo-induced mo-mo trades, and the AI thievery going on today is ruining the market for average investors everywhere. How else do you explain the fact that individuals continue to pull money out of equity funds at an eye-popping rate? For example, despite the fact that both the S&P and DJIA hit new bull market highs last week, the public yanked another $2.7 billion out of equity funds. Sure, nobody sees what is happening to their trades when they buy Apple (AAPL), Google (GOOG), or Mickey D’s (MCD), or when they sell their Facebook (FB) shares. But, behind the scenes, deep in the plumbing of the so-called exchanges, there are computers working at nearly the speed of light to grab a fraction of a penny from you, and you, and you, and… But as the saying goes, you’ve got to play the hand you’ve been dealt, not the one you want. So, despite my feelings toward the practice of HFT by a select few banks and hedge funds, I have found that HFT can actually serve a purpose. You see, every time a headline, report, or rumor hits the newswires, the computers react. There is no thinking and there is no analysis done by the machines. No, when the computer gets the combination of words it has been “programmed to receive,” it fires off rounds of trades faster than you can blink. Remember, the difference between winning and losing in the game of HFT is often determined by how fast your machine moves. But again, I digress. The point is that dozens and dozens of computers are all “watching” the same headlines (and did you know that a cottage industry has grown up that converts headlines and reports into code computers can “read”?). And since, at least at this stage of the game, a human programs the computer as to the type of trades that are to be triggered by the headline, the magnitude of the nearly instantaneous reaction to each and every headline tells us what is important to the math geniuses doing the coding (and, of course, their bosses – the guys who actually understand what moves the market). Wednesday was a perfect example of what I’m rambling on about this morning. When the report on New Home Sales hit the tape (which were better than expected by the way) the market barely budged. Sure the report had been leaked early, but the bottom line is that nobody who tells the computers what to do cared about the number. However, when Eurogroup Chief Jean-Claude Juncker started to talk the market began to move in earnest. It turns out that there was an awful lot of talk out of Europe yesterday that included the words “Greek exit.” And it seems that every time a comment was made a new batch of sell programs hit the tape. Even after the market spiked higher on the FOMC minutes, the headline “Citigroup Sees Greek Exit As Early As September/October” knocked 5 points off the S&P 500 in a matter of minutes. Thus, we can conclude that Greece is still important to the stock market these days. I know, I know, I too am sick and tired of anything and everything relating to Greece. But if the algo’s still care, then I need to care. Speaking of caring, apparently Ben Bernanke’s gang still matters to the boys and their expensive computer toys. As the clock struck 2:00 pm eastern yesterday, the S&P suddenly spiked from 1408 to about 1413 in 4 minutes (with the move to 1411 occurring in the first minute). And since I’ve learned that anything moving the market at least 1 S&P point per minute for several minutes is a big deal, I figured something was up. It turns out that while my feeble brain had forgotten about it, this was when the FOMC minutes were released. Usually the Fed minutes aren’t a big deal. But this time there was a paragraph that led both humans and computers alike to realize that the Fed just might launch another round of QE – and soon. So, as you might suspect, it was up, up, and away for a few minutes. Well, until the next Greek headline hit and the computers did their thing for a few more minutes. But once the humans got involved again, the machines made it very clear that the Fed still matters to the market. And based on the next 7-point S&P swing, I’m going to say that the Fed obviously still matters a lot. So, while I utterly abhor the idea of a select few raking in millions by jumping in front of your buy or sell order (why exactly is this legal again?), all the lightning-fast HFT mo-mo trades can tell us what the market is “about” if we will simply watch what they are doing and when. Publishing Note: With vacation season in full swing on Wall Street, Daily State reports will be published on an as needed basis between now and Labor Day. Turning to this morning… Markets were higher in Asia and are flat in Europe at the present time in response to weaker flash PMI numbers in both regions. In the U.S., futures have recently pulled back on comments from St. Louis Fed President James Bullard who said that the data has improved since the last Fed meeting. Futures now point to a flat open here in the U.S. On the Economic front… We will get reports on Weekly Jobless Claims, Flash Manufacturing PMI, Bloomberg Consumer Comfort, New Home Sales, and FHFA House Prices this morning. Thought for the day… Remember, you can choose a peaceful mode at any point of any day… Pre-Game Indicators Here are the Pre-Market indicators we review each morning before the opening bell… !========>
Positions in stocks mentioned: AAPL, SPY Follow Me on Twitter: @StateDave!========> Download our Special Report on our New “Adaptive” Active Risk Management System for the Stock Market The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment. Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided. The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed. The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer. Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice. Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results. |
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