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Honey, It’s Your Money

Published on May 25, 2010

Honey, It’s Your Money

May 25, 2010

As of this writing, US stock futures are down heavily. Dow futures are off almost 200 points, S&P500 futures are off almost 25 points; almost all the indices in Europe are down 2.5%; Nikkei and Hang Seng were down 3%; India and China are also off almost 2%. What a day !!!

You may site whatever reasons for this pullback,  but the fact remains that Markets were overbought, overstretched and overvalued before the recent sell off started. Hope you have been reading this blog for sometime. Don’t forget to carefully watch these levels that I shared on May 19th. The internals have been weakening; NYSE stocks that are above 50days moving average is 10.53%, lowest in a year; less than half of all the NYSE stocks are above 200 days moving average. All 3 major indices i.e.  Dow, S&P500, Nasdaq closed below 200 days moving average.

Wall Street is an amazing place. As market heads in “one direction”, more and more  analysts surface who have been “right” for that direction. If Markets are facing a pull back, you will find as if you are surrounded by “dooms day” forecasters; and as soon as market makes a turn, a lot of them will make a swift change to their tone. The truth, as I think, is that no one can predict the markets. You may make intelligent guesstimates, at best. It’s only the extremes when those guesstimates can be more accurate. Bottomline, be careful and don’t overdose yourself with the news and respect the risk.

Those who were watching market action of past few days, might have noticed that last 1 hr of trading has been very active; Dow moves almost 100 points during those hours. What happens during that 1 hr? I don’t know and would like to hear your thoughts. Sometime back, I mentioned about my suspicion of market action during major market meetings i.e. FOMC, Congress hearings, etc.

Sometimes, like during Fed Announcements/Testimony/Major Economic news, I look at market with heightened skepticism as if market participants are playing with stock market to get the decision they want from that “meeting” but I don’t know how to write this….

Here is what Mex Keiser, inventor of HFT, has to say

Remove all the buy orders that you control (since HFT traffic is 70% of the order flow, if you simply pull your HFT buy orders, you remove a huge chunk of the market – in a heartbeat – leaving a sudden price vacuum). If you wanted to scare congress to vote the way you wanted them to vote – a congress that is directly invested in stocks trading on the exchange and ETF’s tied to the prices on the exchange – just pull your buys. When they do what you want them to do – replace your buys. If you want to make the market go up – pull your sell orders. It works both ways. (It’s all detailed in my Virtual Specialist Technology patent – how to make markets in an ‘infinite inventory environment.’)

I am linking to an article from “Gaming the Market” that covers above topic as well as two popular ETFs (GLD and SLV). I surely didn’t know that my GLD position is bet against me in a leveraged market? That my $1 in GLD can turn into $15 COMEX shorts suppressing the price of gold. So do you think you can really tame the Mr Market, Think again. You may read more about this here.

At the end of the day, it is your money and you need to have proper risk management plans in place. Little Johnny(s) came to the Market and were caught off-guard. S&P500 is down almost 10% since then. And as of yesterday close, both Dow and S&P has erased past 6months of gains.  Trade Carefully.

Profitable Trading, OP

3 Comments

  • Chris says:

    I have read the website under “more about this here”.
    It just remembered me a couple of years back, I do not remember when, banks were being liquidated that friday at the open. My short profit on KBW was 25%, in just 2 days. I took my profit in the frenzy : 20+%.
    Twenty minutes before the close, Tradestation called me to tell me that my sale had been cancelled by the Exchange and the shares credited to my account back again; Tradestation kindly told me that I had no recourse and that it occured to many, many people. I was glad to have taken the phone call at 9:40 pm that friday, 20 minutes before Wall Street’s close from where I trade, so that I could sell the shares again.
    The profit was wiped.
    They have done (it at least once before). They did it again last week.
    I understand why some really knowledgeable people (SocGen, if my memory is right) advise to buy gold, physical gold. I have also in the back of my mind Roosevelt Gold Confiscation Order from April 1933.
    Lets be pragmatic : countries that are bankrupt, with people walking down the street yelling “No”, what can they do?

  • OptionPundit says:

    This has happened to some OPN members on the “fat finger” day; Btw, here is latest tally of Gold Holding

    The world’s largest gold-backed
    exchange-traded fund, the SPDR Gold Trust , said its
    holdings totalled 1,267.322 tonnes as of May 25, up from
    1,236.889 tonnes previously, setting a fresh record high.
    For details on gold holdings by the ETF listed in New York
    and also co-listed on other exchanges, click on:
    http://www.exchangetradedgold.com/

  • […] -It’s your money. Take care and trade carefully. There is no need to take unnecessary risk. When bear attacks, panic […]

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