Friday, April 26, 2013

Fat Fingers, Phony Tweets and Today's Markets

A few years back, we had the "Flash Crash" due to the "fat finger..."  This past week -- on Tuesday -- if you looked at the price chart for the day, and didn't know what was going on, you might think that there was a data error (see circled area).  However, what you see is the real price action -- moving markets down 1% and then up 1%, within minutes -- due to false rumors of an explosion near the White House.

The DJIA dropped 120 points in just one minute due to the fake tweet!  Tory Capital reports below:

s&p 500 spy etf chart april 23 2013 on twitter flash crash

For a few surreal minutes, a mere 12 words on Twitter caused the world's mightiest stock market to tremble.

No sooner did hackers send a false Associated Press tweet reporting explosions at the White House on Tuesday than investors started dumping stocks eventually unloading $134 billion worth. Turns out, some investors are not only gullible, they're impossibly fast stock traders.

Except most of the investors weren't human. They were computers, selling on autopilot beyond the control of humans, like a scene from a sci-fi horror film.

"Before you could blink, it was over," said Joe Saluzzi, co-founder of Themis Trading and an outspoken critic of high-speed computerized trading. "With people, you wouldn't have this type of reaction."

For decades, computers have been sorting through data and news to help investment funds decide whether to buy or sell. But that's old school. Now "algorithmic" trading programs sift through data, news, even tweets, and execute trades by themselves in fractions of a second, without slowpoke humans getting in the way. More than half of stock trading every day is done this way.

Read more here:

Monday, April 15, 2013

Gold Continues Sell-Off 4/15/13

Gold continued the extreme sell-off it saw on Friday, when it dropped from about 1565 to 1500 (basis the June 2013 futures contract).  Over the weekend and into the New York opening on Monday, April 15, 2013, gold is seeing a breathtaking drop to the 1400 level.  This drop of about 10% shows why traders often have risk management approaches in place and act first -- and ask questions later.  Gold is now at two-year lows (at the lows of 2011 and 2012).

In futures trading, trend-followers are often seen as "reactive" -- but technical traders who follow trends have also seen their approaches be "predictive."  Other precious metals such as silver and platinum, and related markets such as the Aussie dollar are also selling off in sympathy.

More on the technical selling from the CME:

The gold futures markets opened in New York on Friday 12th April to a monumental 3.4 million ounces (100 tonnes) of gold selling of the June futures contract (see below) in what proved to be only an opening shot. The selling took gold to the technically very 
important level of $1540 which was not only the low of 2012, it was also seen by many as the level which confirmed the ongoing bull run which dates back to 2000. In many traders minds it stood as a formidable support level... the line in the sand. 

Two hours later the initial selling, rumoured to have been routed through Merrill Lynch's floor team, by a rather more significant blast when the floor was hit by a further 10 million ounces of selling (300 tonnes) over the following 30 minutes of trading. This was clearly not a case of disappointed longs leaving the market - it had the hallmarks of a concerted 'short sale', which by driving prices sharply lower in a display of 'shock & awe' - would seek to gain further momentum by prompting others to also sell as their positions as they hit their maximum acceptable losses or so-called 'stopped-out' in market parlance - probably hidden the unimpeachable (?) $1540 level.

The selling was timed for optimal impact with New York at its most liquid, while key overseas gold markets including London were open and able feel the impact. The estimated 400 tonne of gold futures selling in total equates to 15% of annual gold mine production - too much for the market to readily absorb, especially with sentiment weak following gold's non performance in the wake of Japanese QE, a nuclear threat from North Korea and weakening US economic data. The assault to the short side was essentially saying "you are long... and wrong".

Read more here:

And why is gold selling off?  Some say it is the result of China's latest round of economic numbers (China GDP), and others report that stories of Cyprus selling gold reserves (related to the Greek crisis) is hitting the gold market.

Wednesday, April 10, 2013

Head and Shoulders Above the Rest? Institutional Investors and Technical Analysis

Here is the Abstract of a paper on institutional investors and their usage of technical analysis.


Based on a study of more than 10,000 actively managed equity and balanced funds, including about one-third of which employ technical analysis, the authors compared the investment performance of funds that use technical analysis versus those that do not using five metrics. They found that funds using technical analysis provided a meaningful advantage to their investors.


Registration may be required to read more, but the main ideas are listed.  

Tuesday, April 2, 2013

Billionaires Dumping Stocks...

Are we climbing a "wall of worry" or are we in store for a big stock market drop?  Only time will tell -- but here is an interesting article about some big names who have been selling into the stock market rally.


Despite the 6.5% stock market rally over the last three months, a handful of billionaires are quietly dumping their American stocks . . . and fast.

Warren Buffett, who has been a cheerleader for U.S. stocks for quite some time, is dumping shares at an alarming rate. He recently complained of “disappointing performance” in dyed-in-the-wool American companies like Johnson & Johnson, Procter & Gamble, and Kraft Foods.

In the latest filing for Buffett’s holding company Berkshire Hathaway, Buffett has been drastically reducing his exposure to stocks that depend on consumer purchasing habits. Berkshire sold roughly 19 million shares of Johnson & Johnson, and reduced his overall stake in “consumer product stocks” by 21%. Berkshire Hathaway also sold its entire stake in California-based computer parts supplier Intel.

With 70% of the U.S. economy dependent on consumer spending, Buffett’s apparent lack of faith in these companies’ future prospects is worrisome. 

Unfortunately Buffett isn’t alone.

Fellow billionaire John Paulson, who made a fortune betting on the subprime mortgage meltdown, is clearing out of U.S. stocks too. During the second quarter of the year, Paulson’s hedge fund, Paulson & Co., dumped 14 million shares of JPMorgan Chase. The fund also dumped its entire position in discount retailer Family Dollar and consumer-goods maker Sara Lee.

Finally, billionaire George Soros recently sold nearly all of his bank stocks, including shares of JPMorgan Chase, Citigroup, and Goldman Sachs. Between the three banks, Soros sold more than a million shares.

Read more here: