The Huge Shift In Market Structure That Occurred Yesterday

Equity markets relatively collapsed intraday yesterday given the recent lack of volatility with the range around four times larger than the three-month average and volume at its highest in that period. While that is significant of itself, as the S&P broke its uptrend, Nanex has found a much more serious shift in the market structure that occurred yesterday. Soon after the open on the US day session, market-making HFTs surged their quote-stuffing efforts to the highest level in months. Whether this was intended to artificially inflate orders to enable institutional sell-orders to be crossed with falsely hopeful retail orders is unclear but given the order flow and direction of trade, it seems something significant changed yesterday.

Via Nanex,

On February 25, 2013, starting around 10:35, the number of quotes relative to the number of trades began surging and rocketed to levels not seen for several months. Although the levels have not come anywhere near the preposterous heights set back in August 2011 (when HFT reigned with impunity), the surge is enough to warrant extra attention. Charts below plot the ratio of quotes to trade value (similar to Quotes/Trades but in way to better compare the shifting lower transaction size since 2006). Each line shows the one-minute average value for all NMS stocks (about 8,000) for each minute of one trading day (9:30 to 16:00 ET), color coded by age: older dates towards the violet end of the spectrum, while recent days are colored towards the red end. The thick red line is Feb 25, 2013: note the surge doesn't start until about 10:35.

A total of 764,962,237,673 quotes and  43,688,052,096 trades were processed to create Chart 2.

1. Quotes per $10K of stock traded. One-minute average from Jan 2013 through Feb 25, 2013 for every minute of the trading day. Red line is Feb 25, 2013.
Things are normal until about 10:35am, when quote spamming surging. 

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2. Same as chart above, but showing from Jan 2007 through Feb 25, 2013
Excessive quote traffic has been on the decline. Though the surge on Feb 25th stood out in stark contrast to recent trading, it is still way below the crazy days of August 2011, when HFT reigned with impunity.

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3. SPY 30-Minute OHLC bar chart. Red Arrow indicates when the surge in quotes began.

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Comments

[beaker]

There's a disturbance in the universe...

[edb5s]

The HFTs were probably just providing liquidity for the retail buyers taking part in the great rotation. Someone has to fill all those market buy orders for FB and AAPL!

/sarc

[Divided States ...]

Zerohedge is now a scientific blog??? This is some huge solar flare!

[francis_sawyer]

Looks like the Nanex has been using the SUCK KUT too...

[cifo]

Can't Nanex identify who did that?

[francis_sawyer]

Waddell & Reed

[A L I E N]

Ha Ha, their ES hedges dominate

[Clowns on Acid]

No - but the Exchanges can.....

[Freddie]

Hemmeroid flare up.

[zuuma]

I think I've found a way through the HFT/ Algo investment chaos.

Other than buying additional PMs: Gold, Silver, Lead, Brass;

I am confining my investment strategy to Old Crow bourbon.

It is surprisingly smooth, for its moderately cheap price.

I feel quite good about all those charts!

[Crash Overide]

I am still long ammo, gardens, and booze.

[SunRise]

Well . . . armed with ammo, gardens, AND booze, you may want to consider adding bandaids & torniquets to the mix, or a coordination lock for the whiskey box.

[Bizaro World]

Just turn it off, wait 10 seconds, then turn it back on...that's what my IT guys always tell me...

[nugjuice]

Don't forget to clear out your cookies too. It's always the cookies

[Sophist Economicus]

Aurora Borealis...

[waterwitch]

aurora bernanQE-olis

[blu]

Oops my bad.

[ZerOhead]

Hey... you sound like the Chairman of the IPCC.

Breaking Global Warming news... (and it's worse than we thought! :)

The UN’s climate change chief, Rajendra Pachauri, has acknowledged a 17-year pause in global temperature rises, confirmed recently by Britain’s Met Office, but said it would need to last “30 to 40 years at least” to break the long-term global warming trend.

http://www.thegwpf.org/ipcc-head-pachauri-acknowledges-global-warming-st...

Meanwhile last summer there was record heat and drought in Texas almost as bad as the 1930's.

Right now, the region of most intense drought (see map) is uncomfortably similar to that of the 1930s, focused on western Nebraska, Kansas, Oklahoma, and Texas, plus parts of eastern Wyoming, Colorado, and New Mexico.

https://www2.ucar.edu/atmosnews/opinion/8349/dust-bowl-vs-2012

Yesterday record snowfall in the Texas panhandle beats the last record during the dustbowl in 1934.

She says the city’s snowfall was the second-most in a 24-hour period, just behind the 19.3 inches that fell March 25, 1934. The storm that moved across the Texas Panhandle also was the third all-time snow event. The most snow in one event was 20.6 inches that fell March 25 and 26, 1934.

http://www.dallasnews.com/news/state/headlines/20130226-texas-panhandle-...

[ParkAveFlasher]

There is absolutely nothing blackswannish about the term "dust bowl" especially as it possibly applies to a formerly-industrialized military superpower that has outsourced production, exported its gold, impeded the tapping of resources, taxed and harried its citizens, practices fractional reserve banking, disrupts its currency supply in spite world reserve status, and leans heavily on expensive agricultural exports generated by vast, flat grassy regions that are prone to 100-year climate disasters like drought, dustbowl, and flood. 

Absolutely nothing blackswannish, whatsoever, whatsohaveyou.

[ZerOhead]

I heard Goldman was busy buying uncovered crop insurance on farms in the south-west in the form of CDS's (Corn Disaster Swaps).

I expect thay will be hedging with purchases of physical napalm in the commodites market just to be on the safe side...

'God's Work' you know...

[thisandthat]

AHAHAH What a douche.

but said he would need to last “30 to 40 years at least” to break his long-term investments trend.

This I would believe :P

[Cognitive Dissonance]

That's a nasty island/gap to be filled down there around SPY $143 folks.

[CPL]

Benny has this.  He's got the spackle to patch it and a high volume printing device with a fleet of HFT's to do it.

[francis_sawyer]

I predicted 2/27/13 ~ give or take...

~~~

http://www.zerohedge.com/news/2013-02-23/380-scariest-number-bulls#comment-3270397

[francis_sawyer]

.

[thecoloredsky]

What about this chart?

http://www.insidertrade.net/wp-content/uploads/2013/02/InsiderSellBuyRatioFebruary222013.jpg

Not time yet CPL? Thinking about backing up the truck right about.... now

[eclectic syncretist]

Sell em' hard.  I'll probably be selling some soon too, but I've still got some silver to accumulate first.

[dontgoforit]

And duct tape & baling wire & epoxy too.  Too bad he doesn't know how to fix anything....

[McMolotov]

I'm pretty sure he's figured out how to fix the "markets."

[francis_sawyer]

14 minutes & 59 seconds... ON THE NOSE!

[Dr. Engali]

Nothing a little SPY 80 point flash crash can't fix.

[candyman]

Island formation I believe, the downtrend ended with 80% probability. just guessing.

[dcb]

It would be nice if pictures could give some guess as to the significance or impact of these changes. Meaning, so what, what does it mean, why should I be concerned

[Cognitive Dissonance]

It means the ride could get very exciting from right about >here<.

<Please bring your seat and tray table back to their upright position and fasten your seat belt. Then kiss your assets goodbye.>  :)

[CPL]

90% of all trades are machine stuffing now.  Means Bullish.  Hyperinflationary type of bullish.

[blu]

You'll take whatever kind of bullish they give you -- and you'll like it.

[Vashta Nerada]

I'm pretty sure it was someone on E-Trade trying to buy 4 shares of AAPL, whose enter key got stuck upon execution.

[ziggy59]

Perception Deception continues unabated except for ZH

[Motorhead]

No wonder the economy and the stock market is all fucked up...solar flares (whch, of course, affect the weather).

[TrumpXVI]

Those charts look like the Genesis Weapon from Star Trek terraforming an alien planet.

[blu]

Except we're not an alien planet. But yeah, we're being transformed. Kinda sucks actually.

[TrumpXVI]

Good point, now I'm depressed again.

[ParkAveFlasher]

Know what I do when I'm depressed by algos terraforming the economic landscape?  I stack tits.

[blu]

In that case you might be ready for some of my alternative reality:

http://madscienceunlimited.com/fiction/theexchange.html

See if you can stack any of that, son.

[Oldwood]

"terrorforming"

[dontgoforit]

Beam me anywhere, Scottie!

[SheepDog-One]

Must....Save....Equities.

[fuu]

I'm sure someone will come along shortly and explain why Nanex is wrong without actually providing any data.

[buzzsaw99]

i sense a great disturbance in the farce

[dontgoforit]

The farce has farted and look what came out:  Bernanke!