06/30/2012 Weekend Update

[Al_Dente]

PAGING

.......... I think that Credit balances in margins accounts first would have to be higher for the crash and burn senario.

GOOD POINT

[Harapa]

PAGING HARAPA
Awesome
It will take me a long while to digest all of that
Just saying: if u get only little response from boardies, DON’T THINK that folks don’t care…. because we do…
I’m devouring jeff miller overview right now [edit: possibly one of the best links of the year??]
Thank you very much

Dear Al,
Thanks for the encouragement and appreciation.
I understand most folks here are interested in day trading, which for me is too fast; I need to assimilate things first before taking an action but DT seem like shoot first think later type of work (my opinion), not suited for my slow neurons (and don’t you think I am 80 yr old).

I like Jeff’s commentary due to its balanced style and breadth. It does incorporate both fundamental and funny-mental variables.
I know you like BB52X’s front man/gal and pay attention to Vixies. My use of VIX is inspired by two of you. And again this is not meant to be for day trading although it can be. In my version I get best results with 1 hour time frame and in combination with status of WLIg (as I posted earlier).

BTW, in all my readings I have not seen anything that performed like the WLIg based model. Other thing I like about this model is its transparency; author was generous enough to provide all the detail that are needed to replicate this work in your spreadsheet. I would suggest taking a serious look at this;it could serve along with other tools you have.

[ZimZeb]

[jdow]

I want to point out the unnatural curve that occured on Thursday. After the breakdown occured on chart, there should have good movement to the second lower horizontal line. That did not happen. We (I) should have known something was wrong at that point. I felt I really did not known something was wrong until the end of day when the rebound was stronger than expected. The point I was trying to make, was that a change in the state of my mind was not made because it was focused on Health Care news. Lesson learned. Must be open to market changes instantly.

Yes, If we go back to Cobra’s newcomer material, focused on price action, it was time to go long Thursday. Must be open to market changes instantly and price action has anything we can speculate or discuss here.

[xfradnex]

PAGING

.......... I think that Credit balances in margins accounts first would have to be higher for the crash and burn senario.

GOOD POINT

Al at this point, although Margin debt has not peaked, this hill is much shorter than the previous peak, so I believe the high on the S&P was in. I just want to make that point clear and see my disclaimer (just in case).

[SWalsh]

Danger Will Robinson

This will be a long post about HFTs/Algos with six pages from a book in the next post that all should give some serious thought. I'll post a link to this tomorrow in Monday's post.

I am halfway through Dark Pools: High-Speed Traders, A.I. Bandits, and the Threat to the Global Financial System
http://tinyurl.com/7tyfjym Heavy in the beginning is one Hiram Bodek, who some considered a mathematics savant. His father was furious he himself was not awarded a Nobel Prize for research in the area of quarks.


The exchanges have realized that massive volume equals massive profits. Forget "value" as it means nothing. Plus, throughout all exchanges they try to keep them up as public money flows out of bear markets.

When a pioneer who designed a method to trade the system realizes something changed in early 2009 and remains broken by Dark Pools, it is worth taking note. What was wrong and what changed? Placing limit orders. The way they go into the exchange changed. Bodek is a programming genius and knew the market. Limit orders are childs play. To quote the book, "EVERY SINGLE LIMIT ORDER PLACED GETS SCREWED". The SEC instituted Regulation National Market System (REG NMS). Any order to buy or sell had to be directed to the best exchange price. Best price is monitored by the Security Information Processors...or the SIP Feed. All trading venues must now monitor this and reroute orders accordingly.

This regulation has allowed HFTs access to a different type of order that places retail orders back behind them....VIOLA...it has been solved. They wrote regulations that have allowed the HFTs to jump orders hundreds of thousands, if not millions, of times a day. And their orders are locked and they are hidden. Limit orders are moved by changing the orders and changing the market for the stock. Orders are reshuffled and it is "fiendishly hidden". How this happens is worth the price of the book. And Hiram was asking exchanges for answers and the exchanges had to know and refused to answer him. If everyone knew the limit order placement would be reduced and the HFTs could not make the money they do. Asked if it was illegal his source laughed saying "It probably is....but then the HFTs will not use our exchange"

The exchanges now exist for commissions when they used to be non-profit institutions for "Price Discovery". That is the stated reason for the existences of all exchanges. Now, they are profit centers. And frankly, it's now - Screw the public because as long as they have to put money somewhere, we can take it from them.

It's pools, within pools, within pools. Dark pools were 40% of volume by the end of 2011. Bots are roaming to find something and HFTs are sniffing them out at 600 nanoseconds with 9 million quotes a second.

Holding periods estimates of the average stock trade:
2000: 8 months
2008: 2 months
2011: 22 seconds

Remember the "Flash Crash"? They fear it daily. They fear an unstoppable feedback loop that won't stop selling. They fear what they might have wrong in the machine's code, whatever "it" is? They do not know what they do not know.

ZeroHedge has this article and I know for sure that I will only take sell signals after this book. Bulls can make what they like. But I'm not risking the mkt closing and not re-opening in moments. Why? Because a Black Swan will make it happen. I know, I know, that sounds nuts. Well if you trade, read this book or be foolish. Because these charts we all look at are simplistic in the extreme and they are gamed to bury those who use them from the old, John Murphy type trading book on TA. Guys who could teach advanced Quantum Physics have figured all of them out.

This is why I reported that a guy speaking on The John Batchelor Show on WABC in April of the HFTs owning the exchanges because they could not stop them and remain open, and the collapse the economy would then follow, was stripped from the podcast.

I tweeted to the individual who I am 95% sure was the guest and he said, "I don't recall being on in April". That show is a very big show. Not remembering being on a show that big tells me he was. When I replied back and asked if he spoke of HFTs on the show, or knew who, but I thought he did, he did not reply again. He tweets daily. He has an English accent. He is on every few weeks. But suddenly he had amnesia.

He reported that the Fed had turned some HFT traders in another case and were learning what went on, that some Russian algos were manipulating some stocks but the FBI never thought they'd find anything but a few wires in the room, and that The Law of Unintended Consequences are going to arrive one day. That is decidedly not what they want the public to know.

Until you understand what this 70-85% of the daily HFT/Algos are doing, you can't fully understand that one trading market was closed in 2008, and another one opened in 2009. And it is out of control. These guys sweat bullets that they don't know what might trigger them to trade. It's why their hand is on the "OFF" switch. And that switch was thrown on May of 2010. What if they can't find bids to hit one day and can't shut it off?

This book is stunning! In one instance they are screaming at the machine and wondering why it is not taking profits on options by buying stock into a decline against calls it had sold that were collapsing? They had to manually try to buy. In that time they were slaughtered. It took 30 seconds.

Check out Blair Hull, who sold his company for $531 million to GS in 1999 http://en.wikipedia.org/wiki/Hull_Trading_Company because THAT was the real birth of Goldman Sachs controlling the markets!

You can read the first 79 pages of a book that will take you probably 5-7 hrs to read.
http://tinyurl.com/7roku99

[SWalsh]

Six pages from the book:

[SWalsh]

In the end, printing money is the only solution. All those countries simply keep borrowing and borrowing and borrowing as the best solution is to make the problem worse and worse and eventually, impossible to return the money, then the problem is solved automatically.

If by "solution" you mean it is temporarily preventing the inevitable, then I agree it has worked, so far.

But it will not work. I have posted the link to Hussman's Oct 2010 article (a number of times) about Bernanke entering the Liquidity Trap, which is one of the most sound theories in economics. Quantatative Easing didn't work for Japan and it will not work in the US or Europe. No growth in GDP, which is what is need to raise the tax base and create jobs, occurs by adding money. An MIT professor, and Hussman, show that the velocity of money is essentially a perfect correlation in slowing for every dollar added. We have 30 years of Japan to see that. There is no solution.

Another great read is "Endgame: The End of The Debt Supercycle And How It Changes Everything". We have a great chance of deflation, for which there is no solution.

[jdow]

In the end, printing money is the only solution. All those countries simply keep borrowing and borrowing and borrowing as the best solution is to make the problem worse and worse and eventually, impossible to return the money, then the problem is solved automatically.

If by "solution" you mean it is temporarily preventing the inevitable, then I agree it has worked, so far.

But it will not work. I have posted the link to Hussman's Oct 2010 article (a number of times) about Bernanke entering the Liquidity Trap, which is one of the most sound theories in economics. Quantatative Easing didn't work for Japan and it will not work in the US or Europe. No growth in GDP, which is what is need to raise the tax base and create jobs, occurs by adding money. An MIT professor, and Hussman, show that the velocity of money is essentially a perfect correlation in slowing for every dollar added. We have 30 years of Japan to see that. There is no solution.
Another great read is "Endgame: The End of The Debt Supercycle And How It Changes Everything". We have a great chance of deflation, for which there is no solution.

so teach us how you trade today. I swing trade over scalp... fwiw

[SWalsh]

In the end, printing money is the only solution. All those countries simply keep borrowing and borrowing and borrowing as the best solution is to make the problem worse and worse and eventually, impossible to return the money, then the problem is solved automatically.

If by "solution" you mean it is temporarily preventing the inevitable, then I agree it has worked, so far.

But it will not work. I have posted the link to Hussman's Oct 2010 article (a number of times) about Bernanke entering the Liquidity Trap, which is one of the most sound theories in economics. Quantatative Easing didn't work for Japan and it will not work in the US or Europe. No growth in GDP, which is what is need to raise the tax base and create jobs, occurs by adding money. An MIT professor, and Hussman, show that the velocity of money is essentially a perfect correlation in slowing for every dollar added. We have 30 years of Japan to see that. There is no solution.
Another great read is "Endgame: The End of The Debt Supercycle And How It Changes Everything". We have a great chance of deflation, for which there is no solution.

so teach us how you trade today. I swing trade over scalp... fwiw

I can't "teach" anyone to trade without knowing just about the middle name of their first born. I can tell you to look at the DayTraders Lounge and the post about scary markets, and read Mark Douglas' "The Disciplined Trader". Because what I use might not suit your trading personality at all. It might be great, it might be awful. I use EW with some oscillators I like and I prefer to be short because what I see is that EW often breaks down and is not clear on forced rallies by HFT machines, but tracks truer on drops. There's much more to trading than charts. Wall Street is loaded with analysts that wish they could trade.