Wednesday, April 24, 2013

Flash Crash Proves Individuals are OUT of the Market and Computers Run the Show

As mentioned briefly yesterday, US and European markets are a joke. They are manipulated beyond one's wildest imagination and almost exclusively, the trading is done by computer algorithms, as was made entirely too clear by the action in yesterday's hacked AP Twitter account-flash crash.

In case you missed it - after all, it was only a four minute event - stocks lost all of their gains when somebody hacked into the Twitter account of the Associated Press (AP) and posted that there were two explosions at the white House and that President Barack Obama had been injured.

The tweet was a hoax, but the computers - which cannot deduce and make value judgements - responded by selling off all stocks. Volume, as displayed in animations from completely dried up, leaving a few computers trading with a few other computers.

In other words, there were very few, if any, human responses to the fake tweet. Welcome to the bidless US stock markets, where only the computers can get the best prices and humans are relegated to a back seat. Any wonder why individual investors are wary of the stock markets? The same conditions likely exist - though not in such a pronounced manner - in forex and commodity markets.

It's time the American people disengage from this lunacy where only the bankers, exchanges and traders profit.

Take, for instance, today's trading, in which, when all was said and done at the close, the S&P gained a penny, the NASDAQ, 32 cents, while the Dow was down 43 points and the NYSE Composite gained almost 34 points. Surely that makes sense to some master algo inside a supercomputer somewhere beneath the trading floors, but to us dumb humans, it's somewhat confounding and confusing.

CNBC's Rick Santelli astutely pointed out that the other trade impacted by the phony tweet was none other than the Japanese Yen - US Dollar cross and the Yen/Euro cross, making the point that the Yen is now also tied into US stocks by HFT algos. Lovely.

Sooner or later, there's going to be a mistake somewhere, or some purposeful key-logging or hacking that completely disrupts trading in markets nearly around the world, and by then it will be too late. Obviously, having algos that trade on the basis of tweeted information is rife with flaws and ripe for harvest by nefarious forces.

As far as today's trading is concerned, nothing really mattered, even though the US was hit with another poor economic report, this one on durable goods orders for March, which came in at -5.1% on expectations of -3.1, so it was a bad miss on an equally bad forecast.

The spate of bad economic data has been partially offset of late by fairly good earnings reports from a smorgasbord of companies, close to half the S&P 500 having already reported. Of course, the algos are all over those, programmed to buy heavily on any earnings beats and disregard most misses.

Reality seems to have evaded Wall Street on a semi-permanent basis, but, Wall Street has never purported to have been a place for well-grounded types of people in the first place.

With sociopaths running the computers which trade the world, humans are bound to get bruised, and badly.

Gold and silver got a little bit of a bid, but a good chuck of it after the COMEX trading session ended. Oil was the top-performer with a gain of more than two percent. Oil never seems to be able to stay down for long. Funny how that always seems to be the case.

Dow 14,676.30, -43.16 (0.29%)
NASDAQ 3,269.65, +0.32 (0.01%)
S&P 500 1,578.79, +0.01 (0.00%)
NYSE Composite 9,147.77, +32.65 (0.37%)
NASDAQ Volume... 1,643,812,625.00
NYSE Volume 3,647,139,250
Combined NYSE & NASDAQ Advance - Decline: 4021-2343
Combined NYSE & NASDAQ New highs - New lows: 381-36
WTI crude oil: 91.43, +2.25
Gold: 1,423.70, +14.90
Silver: 22.83, +0.016

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