the trader
Risk Off as HFT Dominates Currency Trading
Markets trading in a risk off mood today. Volumes are light, but the moves are rather big. With volatility crushed over the last days, people will start feeling nervousness creeping up again. As usual, people have sold volatility in “panic”, and will be very surprised if we see SPX 100 handles lower. We believe yesterday was a nice last short covering panic.
Below some short term charts, and for those saying HFT don’t trade currencies, review the charts below…
SPX Trend Channel, market is losing steam.
Rule Brittania
Guest Post by Sturdyblog;
“This isn’t how a great nation was built. Britannia didn’t rule the waves with arm-bands on.” David Cameron 5 October 2011
Brilliant stuff, right? Evocative, inspiring, witty. Also, inaccurate.
I apologise for robbing you, dear reader, of this romantic illusion, but Britannia was wearing arm-bands; great big ones. On her left arm she was buoyed by slavery and the oppression of the working classes at home; on her right the exploitation of subjugated colonies abroad.
And, ultimately, this is what Cameron’s blueprint for our future requires a return to. He said recently in Europe “Some of my fellow leaders complain that it’s all about markets and speculators, but none of us are proposing to change the market system.” But that system can only function when sitting on a cushion of human misery. Cameron’s ideas do not look to the future. They sigh with nostalgia towards a Dickensian past.
Don’t believe me? Read on.
News That Matters
Ft.com
Three bilateral trade agreements passed the US House of Representatives and Senate on Wednesday. But the votes came with a sense of relief rather than celebration from their supporters, and resignation rather than anger from their opponents, http://ftalphaville.ft.com/thecut/2011/10/13/701141/congress-agrees-trade-agreements/
Apple has won an important legal battle in a Sydney court to block rival Samsung Electronics from selling its Galaxy Tab 10.1 in Australia ahead of the crucial Christmas shopping season, the FT reports. In a blow to Samsung,http://ftalphaville.ft.com/thecut/2011/10/13/701101/australian-court-blocks-samsung-tablet/
Growth in Chinese trade slowed significantly last month as the effects of the economic turmoil hitting its most important trading partners in Europe and the US, the FT reports. Overall Chinese exports increased 17.1 per cent in September from a year earlier, http://ftalphaville.ft.com/thecut/2011/10/13/701061/news-corp-questioned-over-circulation/‘
China has for the first time revealed the estimated size of its copper inventories, implying the country’s consumption may have been lower than thought, the FT says. Chinese copper inventories stood at 1.9m tonnes at the end of 2010,http://ftalphaville.ft.com/thecut/2011/10/13/701026/china-reveals-size-of-copper-inventory-2/
Leading European banks say they would rather sell assets than raise expensive new capital to meet compulsory demands from the European Union for higher capital ratios, threatening a further contraction of credit to the enfeebled eurozone economy, http://ftalphaville.ft.com/thecut/2011/10/13/701001/eu-banks-could-shrink-to-hit-capital-rules-2/
Chinese struggle less than Americans to put food on the table.
If you still wonder why Occupy Wall Street is getting more supporters by the day…
Gallup surveys in China and the U.S. reveal Chinese are struggling less than Americans to put food on their tables. Six percent of Chinese in 2011 say there have been times in the past 12 months when they did not have enough money to buy food that they or their family needed, down significantly from 16% in 2008. Over the same period, the percentage of Americans saying they did not have money for food in the previous 12 months more than doubled from 9% in 2008 to 19% in 2011.
Was today a Turning Point, as shorts covered in Panic?
Below daily chart of SPX. Note how the index makes turning points, with tails at “extreme” levels. As we wrote earlier, this is a mean reverting market, and today might just have been that reversal day, so many shorts have been praying for, but now majority have covered. The ones doubling down all the way up, will cover at the first move down, so we could expect fast moves to the downside. Welcome to Greed and Fear Market.
Remember QE3?
While the shorts struggle, some of the FED members are thinking of QE3….
Meeting participants expressed a range of views on the potential efficacy of policy tools tied to the size and composition of the Federal Reserve’s balance sheet. Many judged that these policies could provide addi- tional monetary policy accommodation by lowering longer-term interest rates and easing financial condi- tions at a time when further reductions in the federal funds rate are infeasible. However, a number saw the potential effects on real economic activity as limited or only transitory, particularly in the current environment of balance sheet deleveraging, credit constraints, and household and business uncertainty about the econom- ic outlook. Participants noted that a SOMA maturity extension program would not expand the Federal Re- serve’s balance sheet or the level of reserve balances, and that the scale of such a program was necessarily limited by the size of the Federal Reserve’s holdings of shorter-term securities so that it could not be repeated to provide further stimulus. A number of participants saw large-scale asset purchases as potentially a more potent tool that should be retained as an option in the event that further policy action to support a stronger economic recovery was warranted. Some judged that large-scale asset purchases and the resulting expansion of the Federal Reserve’s balance sheet would be more likely to raise inflation and inflation expectations than to stimulate economic activity and argued that such tools should be reserved for circumstances in which the risk of deflation was elevated.
Full reading FOMC minutes.
Market Update-Risk On (yet another day)
Markets surging yet another day. Many “smart” shorts have been brutally run over by the bulls during the past week. SPX is still within the trend channel we outlined a week ago, but as we start hitting some decent resistamce levels, it could be time to put some shorts on. Remember, this market is still in Mean Reversion Heaven.
Definition of a “Mini-Flash-Crash”
By Nanex.
 In the course of our research many reporters and industry professionals have asked us to define what a “Mini-Flash-Crash” is. We cannot think of a better explanation than the event shown below. Furthermore, while usage of the term “Mini-Flash-Crash” is now discouraged by regulators, we also cannot think of a single term that better describes the event.
On October 11, 2011, the stock AMJ plummeted from $34.90 to $32.61 (a 6.5% loss) and then recovered, all in just under 4 seconds. This was not an event caused by news or a fat-finger error. |
Redux 2008
Guest Post by Macro Story.
“He observed that human emotions collectively had major impacts on the movement of stock prices and markets in general, ultimately creating patterns that kept repeating.”
- From a book on Jesse Livermore’s trading style
Without a doubt one common similarity between the current market and the fall of 2008 is heightened investor emotions. There are plenty of other similarities from bank nationalizations, a deteriorating global economy and government intervention.
There were wild swings and volatility that whipsawed traders out of positions and saw paper profits appear and disappear in very short order. Traders then as they are today were simply exhausted and decisions were more influenced by emotions than macro data, technical analysis or convictions.
PIMCO bullish on Stocks
- For long-term investors, meaning those prepared to stay invested for three, five and even 10 years, who can endure volatility, we believe equities can offer attractive returns.
- In an extended period of slow economic growth and deleveraging, interest rates are likely to remain low. Actual income generation from investments is important.
- Hopefully society can institutionalize the lessons from this crisis so that future generations don’t repeat it: Individuals, corporations and countries should only borrow to fund long-term investment, not current consumption.
Let’s consider how equities offer returns to investors and see what markets today are telling us:
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