Friday, February 24, 2012

Playing the Market, Twitter-Mob Style; Mogambo Guru Returns

It was certainly an exciting - if uneventful (depending on perspective) - end to the week, as the pumpers on CNBC breathlessly kept viewers in a strange state of animated suspense and anticipation over whether the Dow would actually close above the "psychologically important" (only to them) 13,000 level and the wrangling over details of the latest Greek bailout continued apace across the pond.

But, a funny thing happened on the way to 13,000 - or rather on the way down away from it - this morning, shortly after 10:00 am ET.

With the Dow at what would become the highs of the day, a sudden about-face took place, sending the index screaming for mercy in a 37-point drop over a roughly ten minute span.

Moves like this are not uncommon in the world of fast-paced HTF algos (a subject which has been noted here all too often in the past), but today's event might have had a bit of a different skew. Yesterday afternoon, a group of individuals (no names, please) decided to have a bit of fun, or mischief, possibly at the expense of the well-heeled crowd that convenes on Wall Street regularly.

A plan was concocted to see if a bunch of unrelated, inconspicuous internet users could have an effect on the HTF algos, which, as we know, track headlines from the likes of Bloomberg and the Wall Street Journal, but also follow trends on social websites like Facebook and Twitter.

The idea was that everyone would Tweet, at precisely 10:03 am, "Greece defaults" and see if the dumb algos would fall for the bait. The tweets went out, not all at the same time, and not uniform by any means, though the 10:03 time-stamp was extended, with various mentions of Greece defaulting flowing into the Twitter-verse in earnest for about twenty minutes.

Whether the tweeters actually managed to trip up the HFT traders and their zipity-do-dah algorithms is now and will likely forever be a matter of speculation, but if there were an actual cause and effect, it brings some interesting - and scary - possibilities to the table.

Suppose such crowd-sourced media were actually effective in moving the algos, thus affecting the price of an entire index? What then would be the effect on an individual stock? Were a group of people intent of making some money with this trick, it might be easier than anyone imagines, somewhat akin to elevator whisper campaigns designed to take down candidates in local elections or the old pump-and-dump strategies that were so effective in the early dotcom days of the internet, circa 1998-2001.

A plan could easily be put together to move a stock a few points in one direction or another, with appropriate bets placed by those "in the know." If truly effective, the profits could be staggering. Truth is, that's probably what has been happening in the US markets and elsewhere for quite some time, but especially theses days, as the market seems less than reluctant to trade on rumors and headlines rather than fundamentals.

Whatever the case, today's experiment via Twitter might raise a few eyebrows and give people some ideas. As for 13,000 on the Dow, the CNBC presenters and those with an emotional tie to the number will just have to wait until next week.

The other major development of the day also took place on the internet, and actually happened on Thursday, when the frightful visage of the Mogambo Guru suddenly reappeared sporting his own blog. The majestic Mogambo Guru (MMG) had been a regular typist and word-twister of financial follies on the Daily Reckoning for a long time, though he had taken an absence from penning the occasional witty and irreverent column (OWAIC).

Now that he's back and regularly submitting his thoughts to the public via a blog there should be little doubt that his hordes of faithful followers (HHOFF) will flock to his work like... ummm, bees to honey, or something like that.

Welcome back, oh great, glorious, hallowed, devious and mischievous Guru! Your absence left a hold in the fabric of time and space, but we're sure you'll be promptly attending to mending it.

Just a few quick notes for the weekend:

Today's volume, which has been horribly anemic on a regular basis anyway, was fairly ghastly today, the lowest in a decade, notes ZeroHedge.

There's a meeting of the G20 in Mexico City over the weekend in which the big fight is supposed to be between the IMF's Christine Lagarde and the finance ministers and representatives of Germany. The IMF wants more dough and the Germans are tiring of spending so much. Besides the main event, the undercard features thousands of police in riot gear protecting the one percenters from rock-hurling Mexican hooligans and potentially, armed drug cartel operatives. One has to admit that setting a meeting of world leaders in a place as dangerous as Mexico City offers a bit of intrigue, to say nothing of its inducement to all kinds of mayhem.

Dow 12,982.95, -1.74 (0.01%)
NASDAQ 2,963.75, +6.77 (0.23%)
S&P 500 1,365.74, +2.28 (0.17%)
NYSE Composite 8,151.96, +15.72 (0.19%)
NASDAQ Volume 1,641,587,000
NYSE Volume 3,367,789,000
Combined NYSE & NASDAQ Advance - Decline: 2827-2792
Combined NYSE & NASDAQ New highs - New lows: 281-11 (Really?)
WTI crude oil: 109.77, +1.94 (pain at the pump)
Gold: 1,776.40, -9.90
Silver: 35.34, -0.22

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