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Market Forces

ilene's picture




 

Here's the latest Stock World Weekly: Market Forces. 

Features this week include:

Excerpts:

TECHNICALS with Mark Hanna:

This week, the indexes broke through the tops of their boxes. The carbon and silicon-based life forms controlling the trading scene are now free to run the Risk-Off trade to new heights. As Mark observed on Thursday, 

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“Looks like people are jumping on the upside bandwagon again as the S&P has cleared those highs of 1392-1393 at the 'top of the box... Keep in mind Bernanke has us in a "Tepper moment" again. [Sep 24, 2010: Video - Appaloosa's David Tepper - Ben Bernanke Will Make Everything Go Up in the Can't Lose Environment

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“Either the economy gets better, or the Fed comes in with guns blazing. Either scenario the stock market "wins" in simple think... [Apr 1, 2012: Is it Really as Simple as Don't Fight the Fed?]...

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“Mr. Bernanke said the Fed 'remains prepared to do more' to help the economy should there be further deterioration. We don't know what will trigger QE3, but it's clear it's still out there.

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“Technically now one can use the 'resistance becomes support' thesis, and S&P 1392ish is the line to work against.” [Clearly We've Broken Out of the Box to the Upside]

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S+P Two week

[Mark’s disclosure notice: Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund's holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog]

 

HFT TRADING with Washington's Blog

Addressing the proportion of silicon to carbon-based traders, Washington’s Blog reported, “As of 2010, 50-70% of all stock trades were done by high frequency trading computer algorithms. And many other asset classes are dominated by high frequency trading as well.

“High-frequency trading distorts the markets. See this and this. It lets the big banks peak at what the real traders are buying and selling, and then trade on the insider information. See this, this, this, and this.

“Morgan Stanley has just shown (via the Financial Times) that the percentage of high frequency trading in the stock market has skyrocketed to 84%:

 'Trading by “real” investors is taking up the smallest share of US stock market volumes [since Morgan Stanley started keeping track 10 years ago.]

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'The findings highlight how US trading activity is increasingly being fueled by fast turnover of shares by independent firms and the market-making desks of brokerages, many using high-frequency trading engines. [All of the market-making desks are using it.]’” 

(Full article 84% of All Stock Trades Are By High-Frequency Computers… Only 16% Are Done By Human Traders)

 

TRENDS - Allan Trends

Once again the VXX Long signals were quickly reversed as the market climbed higher last week. 

VXX-Daily2 (1)

 The patterns playing out with the stock  market indexes are not as unanimous, and considering the “big picture,” equal weight needs to be given to all the indices. 

Nasdaq (2)

INDU

The principle of trend following is to be on the right side of the dominant trend of the market. What we see above is a clear downtrend in volatility, VXX, while a mixed bag of signals in the equity indices. I would be more comfortable going Long the market here if all-of-the-above were in alignment. Although this weekend, it looks as though that is where we are headed, we are not there yet.

Gold and Silver rose into the end of last week, but both remain in dominant downtrends. These two can offer tremendous gains as they trend extremely well and there is a host of leveraged instruments to play the trends. Three day of rally was not enough to turn these trends Long, but they are setting up a trading opportunity by either triggering fresh Long trends, or hitting the trend lines and resuming their downtrends with a vengeance. 

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SLV3 (1)

GLD2 (1)

For a risk-free trial, click here for Allan’s standard service; or here for his premium service. The premium trading service is for active/day traders. 


SEA OF CASH by Lee Adler

Looking ahead, will the latest index break outs from Mark Hanna’s boxes endure? Will Allan’s signals turn uniformly to LONGs? Lee Adler of the Wall Street Examiner discusses this question in “Tide About to go Out On the Sea of Cash.” His analysis casts doubt on the idea that the stock market will soar to new highs. 

Courtesy of Lee Adler.

The massive $50 billion Treasury bill paydown that the dealers and other holders received on April 16, augmented by a much more modest $3 billion paydown last week was enough to keep the markets floating upward on a sea of cash. But the tide is about to go out.

Monday, the players must settle $54 billion in new notes and TIPS auctioned last week. From now until mid June, when estimated quarterly income taxes will be collected, there will be no more paydowns. Every other week, another wave of longer term paper will buffet the market. This is a normal feature of the calendar every year, which is one of the reasons why “sell in May and go away” works so well year in and year out.

Last year the Fed exacerbated the problem by taking a wait and see attitude after QE2 wound up. Ben will not make the same mistake this year.

The public, as indicated by bond mutual fund flows, is still buying bonds like mad. By holding short term rates at zero, Bernanke is forcing old people to take ever increasing duration and credit risk. 

The first wave of Bernankecide through the forced drawdown of savings accounts and money market funds will be followed by a second wave when the elderly face massive capital losses in their bond mutual funds. This massive ongoing loss of purchasing power is a drag on the economy. Bernanke has never addressed the issue because the question hasn’t been asked exactly in those terms.

Tax receipts through mid April were much stronger than last year, but that party appears to be over. Tax receipts have fallen rapidly over the past 10 days, so that they are now barely above last year’s pace in real terms. I may be jumping the gun, but if this continues it will indicate that the economy has stalled again. That will spell bigger than expected Treasury supply. (Tide About to go Out On the Sea of Cash)

Note: This section is part of the Wall Street Examiner Professional Edition Treasury Market Update, available to WSE subscribers and being made available to us this week.

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PHARMBOY’S BIOTECH/PHARMA CORNER

This weekend, Pharmboy wrote a follow up article regarding the patent cliff in the pharmaceutical industry. The follow-up article is “Big Pharma – Where Are We Now?” (His original article was "The Calm Before the Storm - Big Pharma Is Gonna Have Big Problems and Pfizer's Is the BIGGEST.") 

In conjunction with his analysis of big pharma companies, Pharmboy likes three option strategies for three well-known pharma stocks...

For example, Pharmboy wrote: "BMY - I like buying the stock ($33.31) and going way out in time on the options by selling a January 2014 $32 call and put for $7.10 or better.  Alternatively, one could do a synthetic buy/write by buying a January 2014 $25/30 bull call spread for $2.50, and selling a January 2014 $30 put for $2.85 (net credit of 35 cents for a $5 spread)." 

 

To read all of Stock World Weekly, click here for a free trial.  

 

 

 

Disclaimer

Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results. We make no representations that the techniques used in our rankings or selections will result in or guarantee profits in trading. Further, our analyses are based on third-party data, which we cannot guarantee as to adequacy, accuracy, completeness or timeliness. We accept no responsibility for any loss arising for use of these materials.

Hypothetical or simulated performance results have certain limitations unlike an actual performance report. Simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under or over compensated for the impact, if any, of certain market factors such as lack of liquidity. Simulated trading programs in general are also subject to the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.

 

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Mon, 04/30/2012 - 12:42 | 2385316 q99x2
q99x2's picture

Lock it up and lock it in here. All of the CNBC crowd detected getting gloomy at the end of last week and today. They must have been given the sell signal. And if that is not enough we have both Hendry and GS saying the US is not going into recession. We've decoupled.

Right--the (FEDS and Banksters, general corporatists monopolists and globalist M'Fers) need more time for the DHS to practice and do testing in Europe before pulling the curtain here.

Mon, 04/30/2012 - 09:11 | 2384734 goforgin
goforgin's picture

...by far the most interesting and actionable blog on this site.

Mon, 04/30/2012 - 09:04 | 2384726 BubbleBobble
BubbleBobble's picture

Long algorithmic trading software companies... In an arms race the smart money is on the arms dealer.

Do NOT follow this link or you will be banned from the site!