Posts Tagged ‘program trading’

PLUNGE! 1987 Style Sudden Drop in US Stocks Driven by Program Trading and a Ponzi Market Structure

PLUNGE! 1987 Style Sudden Drop in US Stocks Driven by Program Trading and a Ponzi Market Structure

Courtesy of JESSE’S CAFÉ AMÉRICAIN

US equities were gripped by panic selling as the Dow plunged almost 1,000 points driven by a cascade of 100 share high frequency program trading, estimated to have been about 80% of volume. Gold rocketed higher to $1,210.

The stock exchange circuit breakers do not effectively apply after 2:30 PM NY time unless the market declines over 20% and they close the exchange for the day.

A bit of a detail perhaps, but it serves to enhance the convenient artificiality of today’s market break.

This is highly reminiscent of the 1987 crash driven by a flawed market structure based on automated trading and bad theories.

The entire stock market rally which we have seen this year off the February lows resembles a low volume Ponzi scheme, and formed a huge air pocket under prices.

This US equity rally was driven by technically oriented buying from the Banks and the hedge funds. There was and still is a lack of legitimate institutional buying at these price levels. This was machine driven speculation enabled by the lack of reform in a system riddled with corruption, from the bottom to the top.

This is yet another indication that the US regulatory and market oversight organizations, especially the SEC and CFTC, continue to be disconnected from and remarkably ineffective in their responsibilities in guarding the public against gross market abuse, price manipulation, and insiders playing games with cheap money supplied by the NY Fed.

And as you might expect, the anchors on financial television are trying to excuse and blame the sell off on a ‘fat finger’ order that caused Proctor and Gamble to drop 20 points in 45 seconds. Or a typist inputting an order to sell 16 million e-mini SP futures, and typing "B" instead of "M." Oops. Crashed the free world.

"Ordinarily, the financial risk in a market, and hence the risk to the economy at large, is limited because the assets traded are finite. There are only so many houses, mortgages, shares of stock, bushels of corn, [bars of silver], or barrels of oil in which to invest.

But a synthetic instrument has no real assets. It is simply a bet on the performance


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Goldman Principal-To-Agency Program Trading Ratio Hits Record 22x

Does a trading monopoly constitute insider trading, or just insider-like trading?  – Ilene

Goldman Principal-To-Agency Program Trading Ratio Hits Record 22x

Courtesy of Tyler Durden

It has been a while since we revisited Goldman’s domination of NYSE program trading courtesy of the SLP [supplemental liquidity providers]. For the past two months we have been waiting for additional information from the NYSE on what other firms are currently SLP vendors to the exchange. By the lack of any data from the NYSE we can only assume that Goldman is still the defacto monopolist in SLP, and in essence the primary privileged DMM on the NYSE. One wonders with liquidity "back to normal" when the NYSE, SEC and Goldman will agree to disassemble the SLP program so that the market can go back to its efficient old-school ways (this is rhetorical).

As the data suggests, Goldman Sachs & Co. now has a staggering 22-to-1 ratio of principal to agency transactions: in the last week Goldman traded 662 million shares in principal capacity (instead of blaming all of this on Goldman’s prop trading cash machine, we would love to be able to break down how much of this is attributable to SLP, but a reborn NYSE which believes in nothing but transparency will simply not provide that data). Taking into account GSEC adds another measly 10 million agency shares doesn’t change the big picture that out of the top 10 NYSE firms, Goldman trades the third lowest amount on an agency basis. Goldman’s casino is now not even pretending to trade on behalf of clients, as all of its money is made on FICC spreads and volumes (aka trading monopoly).

[click on chart to enlarge]

Maybe one of these days Goldman Sachs can do a philanthropic, non-profit seminar on how to ramp futures every single day in the 11pm-3am block. That, or how to use taxpayer money to pay for a trunk line straight into the Marriner Eccles buildling.

 


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Rosie On Who The Market Buyers Are

Rosie On Who The Market Buyers Are

who's buying stocks?Courtesy Tyler Durden at Zero Hedge

From this morning’s Breakfast With Dave:

Is it the private client? Not really — stock funds actually had net outflows of $1.33 billion last week, while bond funds enjoyed an $8.2 billion net inflow.

Is it corporate insiders? Well, heck no — Robert Toll (CEO of Toll Brothers) just disclosed that he sold a total 1.6 million shares of his company’s stock yesterday.

Is it buybacks? Not at all — in fact, S&P 500 companies bought back a mere $24.4 billion on stock repurchases in 2Q, down 72% from a year ago and the lowest in recorded history, according to Howard Silverblatt of Standard & Poor’s.

So who’s doing the buying? Very likely it is still a combination of program trading, short coverings and portfolio managers desperately trying to make up for last year’s epic losses.

The permabid is the new riddle, wrapped in a mystery, inside an HFT market enema.

****

In case you’re wondering, does Robert Toll know something?  Zero Hedge informs us on that too. Apparently, he’s out of the JP Morgan circle and is going to feel really silly if the stock hits $29 next year.

Bob Toll Does Not Front Run JP Morgan

Yesterday Bob Toll sells 1.6 million shares of TOL. Today JP Morgan upgrades the stock, raising its recommendation from Neutral to Overweight, and stock price from $17 to $29.

JP Morgan

What are the possible conclusions:

  1. Bob Toll is a hopeless fool who knows nothing about his company’s business prospects (unlikely)
  2. Bob Toll does not have access to the JPM research reports "huddle" (likely)
  3. A Rorschach test of JP Morgan analyst Michael Rehaut using the picture below reveals an answer of "a diamond in the rough" (near certainty)

 

Top Photo: Buying a book (David Livingstone) by The London Missionary Society, at Wikimedia. 

 


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High Frequency Trading: Wall Street’s New Rent-Seeking Trick

We’ve been following the HFT story since Zero Hedge first shed light on this unfair practice and noted that the market is increasingly dominated by program trading between investment banks. The article below from Money Morning shows that this issue has finally become well-known and market participants are seeking solutions. High Frequency Trading

Consider Phil’s example from Wednesday’s market update: 

"The lack of a retrace was getting downright unhealthy.  As I often complain – rapid rises in the market, especially when accomplished through what we call “stick saves” create virtual air pockets in stock prices and make investing more and more dangerous as we move up.  A simple example I use for members is to imagine the stock market has just 100 total shares.  In March, those 100 shares were worth $1,000 and there was $1,000 sitting on the sidelines in cash.  Shares are bought and sold every day but it doesn’t really matter as they are never all bought or all sold.  The bottom line is that perhaps 25% of the cash actually moved off the sidelines but the market has gained 50% since March.  Where does that leave us?  Well that means we now have 100 shares of stock “worth” $1,500 but now there is only $750 on the sidelines to buy it.

That makes it exponentially harder to move the market higher as the values grow as it takes more and more sideline capital to grow the market each day… In fact, the entire expansion of “value” of the market is an illusion as it WAS possible in March to exchange 100% of the stocks for the cash on the sidelines for $1,000 (assuming everyone on the sidelines would make the trade).  Now that we have USED 25% of the sideline money to inflate the apparent value of the stocks, we have a serious problem because, even if EVERY SINGLE DOLLAR of sideline capital were exchanged for stocks in a panic sale, there is only enough to pay out 50% of the market’s current ‘value.’"

So, are HFT programs being used to increase the price of stocks on a daily basis? How? If, for example, GS keeps the bid artificially high and moving higher in its program trading, stock prices will rise due to GS’s volume dominance. Stock prices keep rising, but not because each
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SP Futures Hourly Chart at 2:30 EDT

SP Futures Hourly Chart at 2:30 EDT

Jesse's Cafe AmericainCourtesy of Jesse’s Café Américain

Some short term indicators are flashing that we are nearing at least a short term top. There is also indication of distribution of stock here by insiders to the public, which is also an indication of a possible top. This judgement is based on many charts and indicators not shown here.

Having said that, our discipline will not prompt us to do any seriously non-hedged shorting until the ‘trendline’ Key Pivot is violated at least on a daily close, and then confirmed by a move lower.

The market is rising on thin volumes, and unless the sellers come back in, it can continue to drift higher on program trading and short squeezes.

We are within two weeks of a potential ‘crash window’ where a final top will be made, and a selloff with a significant leg lower will be seen into the end of year. The window is a bit wide for now, a six week period starting around August 17th. We will hope to tighten that up by the end of July.

This is only a probability, not a hard forecast. But it has us edgy to be on the long side, even in precious metals miners, without hedging a general market decline. The Cashflow in the market is looking a bit stretched. We may have to wait until later in earnings season for this to shake out.

In sum, the markets seem ‘precarious’ and unstable to us, but not enough to jump in front of the market to the bear side yet. 

As an aside, we are seeing quite an increase in ‘screwy fills’ on the bid ask level II where fills on the retail side seem to be made ‘out of bounds’ of the usual bid/ask action.

We do not use market orders normally and would not suggest them here for those that do. The market makers are shaving fills and front running perhaps although that is harder to spot except on the thinly traded stocks where other issues may come into play.

But we are seeing far too many fills BELOW our limit bids on some stocks to believe this market is functioning normally.

[Click on chart to enlarge]


 


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The Latest Wall Street Trading Scam That Costs You Billions

The Latest Wall Street Trading Scam That Costs You Billions

Courtesy of Henry Blodget at Clusterstock

craps player, gambling, clusterstock's photoA paper has been going around that describes a startling new world of high-velocity computerized trading that causes volume and volatility to soar and costs ordinary investors billions of dollars.

The paper, Toxic Equity Trading On Wall Street, appears to have been published late last year by Sal Arnuk and Joseph Saluzzi from a firm called Themis Trading.  (One word of caution: We have not yet verified a single assertion made in the paper, and we had not heard of Themis Trading.  We would be grateful if those of you with insight into this would help us understand the real facts here.)

The paper is embedded below (you can also download it at Themis’s web site).  Here, in brief, is the world it describes:

Many trading orders these days are executed by computers.  Like human traders, the computers break big orders into small chunks (say, 100 or 500 shares) and then match them with orders on electronic stock exchanges.  The reason the orders are broken into chunks is so they won’t move the market too much.  Stock trading is relatively illiquid, and big orders can drive the price of a stock sharply up or down.  Since the dawn of Wall Street time, clever traders have tried to hide the amount of stock they ultimately want to buy or sell to avoid having their own orders move the market sharply against them.

In recent years, such "algorithmic" electronic trading execution has grown in popularity, and a number of electronic trading strategies have sprung up to exploit it. 

In one of these strategies, called "liquidity rebate trading," a program analyzes the incoming order flow on an electronic exchange to try to spot a big institutional order that is just hitting the market (apparently this is relatively easy to do).  The program then front-runs the order by modestly outbidding the institution for the stock and then turning around and selling it to the institution at a higher price than the institution would have otherwise paid.

Front-running is an age-old cheating technique: A trading firm gets a big order from a client and, before it executes it, buys some of the same stock for itself.  Front-running is, in fact, what many Wall Street insiders thought Bernie Madoff was doing before they discovered he…
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Buddy, Can You Spare $5 Trillion?

Is Japan turning into Zimbabwe?  And if you see green shoots after this one, let me know what you’re drinking! 

Buddy, Can You Spare $5 Trillion?

$5 trillion shortfall, need a drinkCourtesy of John Mauldin

This Is Outrageous
The Land of the Setting Sun
Buddy, Can You Spare $5 Trillion?

There is no doubt that the US is in financial trouble. Those talking of a strong recovery are just not dealing with reality. But the US is in better shape than a lot of countries. This week, we begin by looking at Japan. I have written for years about how large their debt-to-GDP ratio is, yet they keep on issuing more debt and seemingly getting away with it. But now, several factors are conspiring to create real problems for the Land of the Rising Sun. They may soon run into a very serious-sized wall. And it is not just Japan. Where will the world find $5 trillion to finance government debt? We look at some very worrisome graphs. Those in the US who think that what happens in the rest of the world doesn’t matter just don’t get it. There is a lot to cover in what will be a very interesting letter. I suggest removing sharp objects or pouring yourself a nice adult beverage.

This Is Outrageous

But first, I want to direct the attention of those in the US finance industry to a white paper written by Themis Trading, called "Toxic Equity Trading Order Flow on Wall Street." Basically, they outline why volume and volatility have jumped so much since 2007; and it’s not due to the credit crisis. They estimate that 70% of the volume in today’s markets is from high-frequency program trading. They outline how large brokers and funds can buy and sell a stock for the same price and still make 0.5 cents. Do that a million times a day and the money adds up. Or maybe do it 8 billion times. It requires powerful computers, complicity of the exchanges (because the exchanges get paid a lot), and highly proximate computer connections. Literally, the need for speed is so important that to play this game you have to have your servers physically at the exchange. Across the river in New Jersey is too slow. Forget Texas or California. This is a game played out in microseconds.

The retail world doesn’t get…
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Goldman: Pwned?

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Goldman SachsGoldman: Pwned?

Courtesy of Karl Denninger at The Market Ticker


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Is A Case Of Quant Trading Sabotage About To Destroy Goldman Sachs

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Is A Case Of Quant Trading Sabotage About To Destroy Goldman Sachs?

Courtesy of Tyler Durden at Zero Hedge

Major developing story: Matt Goldstein over at Reuters may have just broken a story that could spell doom if not [for] the entire Goldman Sachs program trading group, then at least those who deal with "low latency (microseconds) event-driven market data processing, strategy, and order submissions." Visions of swirling, gray storm clouds over Goldman’s SLP and hi-fi traders begin to form.

Back-up: This week’s NYSE Program Trading report was very odd: not only because program trading hit 48.6% of all NYSE trading, a record high at least since the NYSE has kept tabs on this data, and a datapoint which in itself was startling enough to cause some serious red flags as I jaunt from village to village in what little is left of Europe’s bison country, but what was shocking was the disappearance of the #1 mainstay of complete trading domination (i.e., Goldman Sachs) from not just the aforementioned #1 spot, but the entire complete list. In other words: Goldman went from 1st to N/A in one week.

Even more odd, this "disappearance" comes hot on the heels of what Zero Hedge reported could be potentially a major change to the way the NYSE provides its weekly program trading report. Of course, Ray over at the NYSE immediately replied to Zero Hedge that all was going to be same as always … Odd, maybe he meant that all is back to normal except the reporting of Goldman’s trades. Either way, it might very well be time for proactive readers to again contact the two employees publicly disclosed by the NYSE as lead-contacts on the issue.  Readers will recall that it was these same two who were previously steadfastly assuring anyone who would listen that there would be no change at all in data reporting.

Robert Airo, Senior Vice President, NYSE Euronext at (212) 656-5663 or
Aleksandra Radakovic, Vice President, NYSE Regulation at (212) 656-4144

Alas, the just released weekly data proves that either theirs was a material misrepresentation of facts, or Goldman simply suddenly decided to stop transacting with the


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THE GOLDMAN SACHS CONSPIRACY?

THE GOLDMAN SACHS CONSPIRACY?

Courtesy of The Pragmatic Capitalist

The drum beat against Goldman Sachs is growing louder.  As the global economy collapsed last year and U.S. citizens sank under crushing house prices and job losses Goldman appeared to be flourishing (also see here).   Despite doing more than just about any other firm to help create the housing bubble Goldman is now one of the greatest beneficiaries.  But what was once nothing more than a conspiracy theory has now turned into a full blown public debate about manipulation and Goldman’s use of taxpayer bailout dollars.

It’s widely believed that the firm would not have survived the financial crisis without bailout cash and a few interesting moves in the AIG portfolio, but now as the market gyrates in odd fashion on a daily basis the U.S. taxpayer appears to be the one losing.   Goldman’s close ties to the U.S. government have also raised some eyebrows lately.  The routinely high program trading correlated with market ramps are odd as well:

gs, goldman sachs trading records

Meanwhile, job losses continue to mount, wages remain flat and the stock market is 40% off its all-time highs.  But Goldman Sachs is rumored to be having their best year ever.  And they’re rewarding their employees for it.  I’m not generally one for conspiracy theories, but something isn’t right when millions of Americans seem to be in so much pain while the firm that helped create much of this crisis is flourishing.

As always, Martin Armstrong has an opinion and some entertaining reading here on the Goldman Sachs conspiracy…If you missed Matt Taibbi’s piece in Rolling Stone you can find it here.

 

 

 


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Zero Hedge

Bloomberg In Talks To Go Public Through A Bill Ackman SPAC

Courtesy of ZeroHedge View original post here.

Amid the record flood of bubble-era SPAC or "blank check" offerings to hit the market in the past 2 quarters, and which allow a quick and dirty way to take a private company public, a new name has emerged and it's a shocker: after his failed presidential campaign, Mike Bloomberg is said to be in talks to take his media empire public through a SPAC controlled by Bill Ackman.

According to the NY Post, Mike Bloomberg may sell a minority stake in Bloomberg LP, th...



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Phil's Favorites

Buy stocks now or after the election?

 

Buy stocks now or after the election?

Courtesy of 

 

On an all-new episode of What Are Your Thoughts, Josh Brown and Michael Batnick take on the biggest topics on Wall Street this week, including:

*The “pressure cooker of uncertainty” has many investors waiting with cash for the election to be over.
*Amazon is actually losing market share to the old category killers like Best Buy and Walmart, who are getting good at ecommerce.
*YOU ASKED: What should my strategy be, investing or trading?
*Which would produce the biggest rally, a vaccine approval or a signed stimulus bill?...



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ValueWalk

Top 7 Most Popular Social Media Platforms

By Anna Peel. Originally published at ValueWalk.

From a handful of social media platforms in the early 2010s, the social media universe has expanded to more than 100 platforms. New entrants are making an entry every few months.  Debutants like Triller, WT Social, Valence, Flip, and  Popbase have barely scratched the surface, but they might be the next big thing.

Q3 2020 hedge fund letters, conferences and more

Whatever field you are in, it is impossible to ignore the power of social media. Half of the global population reachable by social media, making it a powerful tool for governments, corporation...



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Chart School

Dow Gann Angle Update

Courtesy of Read the Ticker

Time to see what happens to the Dow post US elections.

The Dow Gann Angle Target 3 (from 2007 top) is on the table, and what a ride that will be. The FED went BRRRRR is all the fundamental news you need to know. Gann angles are very good tool to see how the masses are pushing price.


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The last two US elections saw Bitcoin and the DOW rally well for 6 months, due to stimulus. The most bearish 2020 US Election case for the markets is a Biden win with the Senate and Congress controlled by the Democrats, somehow this blog feels that is very unlikely. So what could go wrong!


...

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Kimble Charting Solutions

Will 2020 Mark Historic Low For Interest Rates?

Courtesy of Chris Kimble

US treasury bond yields have been trending lower for over 3 decades. Could the latest drop mark a significant low for bond yields and interest rates?

In today’s chart, we can see that interest rates have had several spike lows and highs, but that each low is lower and each high is lower. That’s the definition of a downtrend. BUT, each of these spike lows has resulted in big rallies within the downtrend channel. And each of these lows and subsequent rallies have been marked by significant momentum lows (see each green line and shaded box).

So is it time for short-term yields to rally?

Looking at the current set-up, we can see that yiel...



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Biotech/COVID-19

Coronavirus reinfection cases: what we know so far - and the vital missing clues

 

Coronavirus reinfection cases: what we know so far – and the vital missing clues

By Sheena Cruickshank, University of Manchester

As President Trump claims that he is immune to COVID-19 and isolated reports emerge of reinfection, what is the truth about immunity to COVID-19?

To date, there have been six published ...



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Politics

Dan's Covid Charts: Blue States vs. Red States Over Time

 

The trend of lower Covid-19 case numbers per capita in blue states compared to red states isn't itself surprising, but the magnitude of the differences may be. You can visualize the evolving differences in case loads by watching the infection's progression, as measured by cases per capita, at Dan's website.

[Visit Dan’s COVID Charts to see these amazing animated charts and more. Fortunately, Dan broke his Twitter hiatus to share his work.]

People say I should break my 12-year Twitter hiatus to share my latest animated COVID chart. It compares state cases factoring in partisanship since June 1, when science had proven methodology as to how to stop the spread after the initial sucker punch. ...



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Digital Currencies

Bitcoin: the UK and US are clamping down on crypto trading - here's why it's not yet a big deal

 

Bitcoin: the UK and US are clamping down on crypto trading – here's why it's not yet a big deal

Where there’s a bit there’s a writ. Novikov Aleksey

Courtesy of Gavin Brown, University of Liverpool

The sale and promotion of derivatives of bitcoin and other cryptocurrencies to amateur investors is being banned in the UK by the financial regulator, the Financial Conduct Authority (FCA). It is a...



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Mapping The Market

COVID-19 Forces More Than Half of Asset Management Firms to Accelerate Adoption of Digital Marketing Technology

By Jacob Wolinsky. Originally published at ValueWalk.

There is no doubt that the use of technology to support client engagement initiatives brings both opportunities and threats but this has been brought into sharp focus this year with the COVID-19 pandemic.

The crisis has brought to the fore the need for firms to enable flexibility in client engagement – the expectation that providers will communicate to clients on their terms, at their speed and frequency and on their preferred channels, is now a given. This is even more critical when clients are experiencing unparalleled anxiety from both market conditions and their own personal circumstances.

...

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The Technical Traders

Adaptive Fibonacci Price Modeling System Suggests Market Peak May Be Near

Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system is suggesting a moderate price peak may be already setting up in the NASDAQ while the Dow Jones, S&P500, and Transportation Index continue to rally beyond the projected Fibonacci Price Expansion Levels.  This indicates that capital may be shifting away from the already lofty Technology sector and into Basic Materials, Financials, Energy, Consumer Staples, Utilities, as well as other sectors.

This type of a structural market shift indicates a move away from speculation and towards Blue Chip returns. It suggests traders and investors are expecting the US consumer to come back strong (or at least hold up the market at...



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Lee's Free Thinking

Texas, Florida, Arizona, Georgia - The Branch COVIDIANS Are Still Burning Down the House

 

Texas, Florida, Arizona, Georgia – The Branch COVIDIANS Are Still Burning Down the House

Courtesy of Lee Adler, WallStreetExaminer 

The numbers of new cases in some of the hardest hit COVID19 states have started to plateau, or even decline, over the past few days. A few pundits have noted it and concluded that it was a hopeful sign. 

Is it real or is something else going on? Like a restriction in the numbers of tests, or simply the inability to test enough, or are some people simply giving up on getting tested? Because as we all know from our dear leader, the less testing, the less...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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Promotions

Free, Live Webinar on Stocks, Options and Trading Strategies

TODAY's LIVE webinar on stocks, options and trading strategy is open to all!

Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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