Algos Plus Momentum, Herd Behavior Equals Wipeout In Stocks

Monday came as quite a surprise for many investors, as stocks sent a strong message of dislike about something, though nobody is certain just what sparked such a massive selling spree.

For the NASDAQ, it was complete wipeout of last week's gains, minus another 160 points. The other indices were down nearly as much as they were up all of last week.

As noted in Money Daily's Weekend Wrap, technical analysis, showing divergent positions amongst the major indices, was suggesting an imminent breakout in one direction or another. It seems that the market decided to make down the dominant direction... for now.

One might expect these divergences to be resolved in short order, though markets today are guided so much by programmatic trading and headline-chasing algorithms, it's difficult to pinpoint where the breaks are actually occurring and in just what direction they are going to move.

Volatility, as persisted throughout October, appears not to have abated, more than likely the result of many diverse factors, rather than just one. The increased employment of computer algorithms, combined with the market's distinctive her behavior, manifested as "momentum," produced another of 2018's banner sessions to the downside.

The Dow's 602-point drop was the 15th biggest in market history, but also the seventh largest of 2018, a distinction that will not be lost on market observers. 2018 figures to already be the most volatile year in market history.

All that can be said going into the holiday season is to be guardedly guarded. This time does appear to be different. America is beset by warring political parties in Washington and Wall Street is unhappy, at a time in which stocks are already overvalued and due for a mean reversion.

While this one-day event was a scary sight, it almost certainly will not be the last.

Dow Jones Industrial Average November Scorecard:

Date	Close	Gain/Loss	Cum. G/L
11/1/18	25,380.74	+264.98	+264.98
11/2/18	25,270.83	-109.91	+155.07
11/5/18	25,461.70	+190.87	+345.94
11/6/18	25,635.01	+173.31	+519.25
11/7/18	26,180.30	+545.29	+1064.54
11/8/18	26,191.22	+10.92	+1075.46
11/9/18	25,989.30	-201.92	+873.54
11/12/18	25,387.18	-602.12	+271.42

At the Close, Monday, November 12, 2018:
Dow Jones Industrial Average: 25,387.18, -602.12 (-2.32%)
NASDAQ: 7,200.87, -206.03 (-2.78%)
S&P 500: 2,726.22, -54.79 (-1.97%)
NYSE Composite: 12,343.51, -194.02 (-1.55%)

Broken Markets Yield Strange Results

How does it happen that all the major indices closed lower on Wednesday, but the NASDAQ finished with a gain of nearly three-quarters of a percent, up 45 points on the day?

Algorithms gone wild, that's how.

With the computers cranked up to stuff speculative stocks with ever-high bids, the NASDAQ has been outperforming the other indices over the past year, but especially so in 2017. Over the past 12 months, the NAZ is up nearly 30%, the Dow gained by 21% and the S&P 18%.

In the past three months, the NASDAQ has improved by 7.59%, while the Dow is up a mere 3.58%, the S&P 500 up 3.92%. That substantial edge has begun slipping however, as the NASDAQ took a major hit on the 8th of June. Prior to that massive outflow, the index was up 9.10% since March 22.

Apparently, that was not to the liking of the speculative sorts populating the concrete canyons of lower Manhattan. That's how results such as Wednesday's occur. Given that computers do more than 60% of all trading, it's not a stretch to believe that certain goal-seeking altos could be cranked up by human hands behind the scenes and the screens.

Markets have been broken by computer-driven trading, lack of oversight by the SEC and meddling by central bankers and the Federal Reserve. With the Swiss National Bank (SNB), Bank of Japan (BOJ), and European Central Bank (ECB) all active purchasers of stocks (not sellers), such meddling behavior is bound to cause distortions such as seen on Wednesday and in a myriad of other sessions, issues, and especially in ETFs.

Stocks may be at or near all-time highs, but caution is urged in such a speculative, managed market. A misstep or fat finger could cause any manner of disorder.

At the Close, 6/21/17:
Dow: 21,410.03, -57.11 (-0.27%)
NASDAQ: 6,233.95, +45.92 (0.74%)
S&P 500: 2,435.61, -1.42 (-0.06%)
NYSE Composite: 11,696.28, -42.67 (-0.36%)

SPX Near All-Time Highs On June Jobs Euphoria

On May 20, 2015, the S&P 500 index (SPX) reached an all-time intra-day high of 2,134.72. The following session, May 21, it set a closing record at 2,130.82.

This Friday, the S&P closed at 2,190.90, settling off the day's high of 2,131.71, so, no records were set in the first full trading week of July (when nobody's paying particular attention), but the major indices are now poised to run beyond their previous highs, set more than a year ago.

Thus, the banking and global finance cartel - which is in complete and unbreakable control of all "trading" markets - has waived any consideration that the third-longest equity bull market in the history of US stock markets was coming to an end.

Bears, those sadly depressed members of the pessimism society (this blog included) are never going to be satisfied it seems. Drops on the major indices of 10% or more (corrections) are not tolerated. 20% declines - bear markets by definition - are not open for discussion within the megalithic construct of global central bank monetarism.

Expect new all-time highs on the S&P promptly Monday morning, with the Dow soon to follow (all time highs of 18,351.36 intra-day and 18,312.39 closing, both on May 19, 2015). The NASDAQ has a bit further to travel, having made its all-time closing high of 5,153.97 on June 22, 2015, reaching its zenith two days later with an intra-day value of 5,164.36.

Whether these prices and averages are justified by fundamental measures of valuation is debatable. By many measures stocks are overpriced. The trading prices of some of the more popular stocks - especially those focused in the technology area (Facebook, Google, Amazon, Apple to name a few) - currently trade at nose-bleed valuations.

According to the financial press, what prompted the sudden jerk higher of US stock markets was Friday's non-farm payroll figures from June.

The Bureau of Labor Statistics (BLS) said non-farm payrolls rose to a seasonally adjusted 287K, from 11K in May, that figure revised lower, from 38K.

Analysts had expected U.S. non-farm payrolls to rise 175K last month, so the surprise factor was enormous. Muddying the waters beyond the mystifying May numbers as compared to June - the largest net gain in eight months, is that the BLS numbers are largely massaged, maneuvered, and mangled into whatever pretzel-logical outcome is desired at the moment.

In a word, the BLS numbers are untrustworthy.

David Rosenberg suggests that the month of June did not in fact show a massive gain, but employment actually declined by 119,000 during the month.

When the Household survey is put on the same comparable footing as the payroll series (the payroll and population-concept adjusted number), employment fell 119,000 in June — again calling into question the veracity of the actual payroll report — and is down 517,000 through this span. The six-month trend has dipped below the zero-line and this has happened but two other times during this seven-year expansion.

Here is another article (from February 2016) that breaks down the faulty, misleading methodology employed by the BLS.

David Stockman opines that the monthly BLS survey is mostly noise and needs to be veiwed over longer periods in order to offer convincing trends and that the May and June tallies, taken together, amount to nothing more than statistical numbness.

Effectively, the BLS survey figures move markets as the algos respond entirely to the headlines, which were out-of-the-park awesome in June. The details were more nuanced, but such does not have influence on stocks.

In any case, since, the Brexit vote, central banks and central planners have returned in force to control the narrative, which, in their view, must continue to be nothing but positive.

For an alternative view, look at the response of gold, silver and especially, government bonds, the 10-year note and 30-year bond in particular, both of which continued to make all-time lows this week.

For the week:
Dow: +197.37 (+1.10%)
S&P 500: +26.95 (+1.28%)
NASDAQ: +94.19 (+1.94%)

Friday's Fantasy:
S&P 500: 2,129.90, +32.00 (1.53%)
Dow: 18,146.74, +250.86 (1.40%)
NASDAQ: 4,956.76, +79.95 (1.64%)

Crude Oil 45.12 -0.04% Gold 1,367.40 +0.39% EUR/USD 1.1051 -0.09% 10-Yr Bond 1.37 -1.51% Corn 361.25 +3.66% Copper 2.12 +0.02% Silver 20.35 +2.58% Natural Gas 2.82 +1.44% Russell 2000 1,177.36 +2.40% VIX 13.20 -10.57% BATS 1000 20,677.17 0.00% GBP/USD 1.2952 +0.30% USD/JPY 100.4600 -0.27%

Stock Rally Extends to Weekend, Rips Faces Off Bears

It was the worst of times. Then, midweek, it became the best of times.

With US stocks falling off the proverbial value cliff on Wednesday, just before noon everything suddenly changed, and the rest of the week was witness to a face-ripping surge which took the Dow Jones Industrials from a low of 15,450.56 on Wednesday to the close Friday at 16,093.51, a gain of 643 points, or, roughly four percent.

The gains from Wednesday afternoon, Thursday, and Friday were so large and so widespread that they left the seeming collapse of Tuesday and early Wednesday as fleeting memories.

Also on the agenda was the untimely end of the price collapse in crude oil, which bottomed out at 26 dollars and change on Wednesday, but closed Friday right around $32 per barrel.

Of course, all of this would not have been possible without some catalyst, like exceptional across-the-board earnings results, outstanding economic data or great geopolitical news. Truth is, none of that happened. Earnings reports have been moderate and inconsistent, economic data has been nothing if not poor, and the geopolitical condition has not changed one whit since Wednesday.

The rally was all concocted and executed by sellers of size, using hyperventilating computer algos which control more than 90% of the trading in the Wall Street casino. It is neither a fair market nor a free market, nor much of a market at all. There hasn't been true price discovery for a long time, at least since March of 2009, when the FASB suspended mark-to-market accounting and the Federal Reserve - in cahoots with the various central banks of Europe, China and Japan - went on an asset-buying binge and slashed the federal funds interest rate to zero.

The market of today is nothing like the one that worked in the heyday of Wall Street. This one is a rotting corpse, overseen by undertakers from the Fed and their lackeys in the large banks and brokerages, which control it, lock, stock and barrel. It is not a place to invest. It is a place to gamble, and gamblers almost always lose.

So it is that the Federal Reserve's reign over the world's finances will continue, with or without some occasional fireworks from the stock market.

The shortened week (markets were closed Monday for MLK Day) ended positive, the first in the three weeks thus far in 2016. However, unless this current rally remains intact and explosive to the upside next week, January will end in the red. By how much is anybody's guess, though the final two days of this week can rightfully be chalked up to options expiration, as doubles many a tenacious trader made money in a derivative fashion.

For the Week:
S&P: +26.57 (+1.41%)
Dow: +105.43 (+0.66%)
NASDAQ: +102.76 (+2.29%)

The Day's Closing Quotes:
S&P 500: 1,906.90, +37.91 (2.03%)
Dow: 16,093.51, +210.83 (1.33%)
NASDAQ: 4,591.18, +119.12 (2.66%)

Crude Oil 31.99 +8.33% Gold 1,097.50 -0.06% EUR/USD 1.08 -0.60% 10-Yr Bond 2.0480 +1.44% Corn 369.75 +0.75% Copper 2.00 +0.28% Silver 14.06 -0.24% Natural Gas 2.14 +0.05% Russell 2000 1,020.77 +2.35% VIX 22.34 -16.30% BATS 1000 20,303.38 +1.95% GBP/USD 1.4264 +0.34% USD/JPY 118.7715 +0.79%
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Stock Indices Displaying the New Minimalism

If not for the power of levitating algos, stocks would have ended the week with losses.

As it is, the major indices end the week (markets closed on Good Friday) with minuscule gains on puny volume, except for the NASDAQ, which actually finished negative for the fourth week in the past five.

Here's how the week shook out:

Dow Ind. +50.58 (0.29)
S&P 500 +5.94 (0.29)
NASDAQ -4.28 (0.09)

... and on the day:
Dow 17,763.24. +65.06 (0.37%)
S&P 500 2,066.96, +7.27 (0.35%)
NASDAQ 4,886.94, +6.71 (0.14%)

For this, we need not one (CNBC), not two (Bloomberg TV), but three (Fox Business) cable networks devoted to stocks?

It would be worthwhile, one supposes, if even one of them told the truth about Wall Street half the time.

These public markets and the networks devoted to coverage of them, are epic fails. The world is rapidly moving beyond their facile facades of importance and heft. Most of the world's population does not own stocks and has no use for massive, unfair, unfeeling corporations and their oligarch-like executives.

Indeed, would half of the Fortune 500 companies in the world fail, markets would clear and more entrepreneurs would take up the slack, having the chance to make an honest living.

Corporations, like the governments which support them, are leeches which prey upon the blood of individuals and communities. The sooner people wake up to the fact that they are strip-mining operations of productive capacity, the better.

Peace. Out.

Everything Is Coming Up Roses...If You Live on Wall Street

Today's Markets:

Dow 17,976.31, +263.65 (1.49%)
S&P 500 2,086.24, +25.22 (1.22%)
NASDAQ 4,947.44, +56.22 (1.15%)

The results of trading today in New York (and just about everywhere else in the world) show that if a trend gets started for no good reason, people will follow along blindly.

There's no good reason for stocks to go up like they did today, especially in the face of weak economic data in the US and in many countries around the world. However, this is the normal conclusion to the debasing of currencies. If money is free to obtain, then it is not regarded as anything of value.

Worse, when markets and morals are manipulated (see gold and silver, primarily) or goosed by computer algorithms which actually do the bulk of the trading, this is what happens.

Should one take the time to research the companies that are being traded these days to higher and higher valuations, one may find an odd, but, nevertheless, disturbing trend among them: that earnings per share are being led higher by stock buybacks, which reduce the number of shares outstanding, so that the same, or even lower, earnings result in the same or higher, EPS. Or, one might discover that many of these same companies' earnings are actually falling, yet, in a complete break with logic and core investing principles, investors are willing to pay more per share for them.

This kind of trading, based on nothing but vapidness and the delusion of crowds, was once thought to be able to continue only for a short while, because, as investors discovered the reality of assets without any basis in reality, they would bail out, sell, and cause a wicked market correction or crash. That hasn't happened in six years of this kind of activity.

While the future is unknown, it can be assumed that whatever is guiding stocks to new high after new high will some day end. The trick is getting the timing right. For most, that would be impossible. For some it will be dumb luck, but, for the many, they will be stuck with stocks without any value.

On Friday, the BLS will release the non-farm payroll report for March, and everyone will happily accept the fiction that 250, 000 - 300,000 net new jobs were created during the month, or, failing that, some excuse, like "weather" will be invented, but stocks will soar to new highs again.

Some things, you can bank on them.

Slowly Goes Wall Street (Remember, It's May)

Equity markets were rather dull today, on exceptionally low volume - which is saying a lot, since volume left the building years ago.

Dull, boring, inconsequential, however, is how financial markets are supposed to be, or, that is at least how they used to be before the advent of personal computers, CNBC and individually-managed accounts. Today's go-go markets are driven by extra doses of liquidity, courtesy of the Fed (as much as readers hate reading that over and over and over again, the author hates having to mention it even more), HFTs, flash crashes, breaking news (why doesn't somebody fix it?), surprises, tweets, scandals, ponzi schemes, dotcoms, options, derivatives, swaps, repos and hot money flowing from carry trades into equities and back out again.

One can only wonder how many times the same money is re-invested, re-invented, re-created, re-hypothecated, recycled, rinsed and repeated. It seems sometimes that one need only a brokerage account and a pair of fast hands to tip-type your way into the wondrous world of high finance. If only such were true, we'd all be traders and multi-millionaires just like the guys on the infomercials telling you that NOW is the time to FLIP THAT HOUSE!

Alas, investing is boring and unexciting, and well it should be, though Americans, driven by media, need the big splash, the dazzle of bright lights and the promise of easy money to be enticed. Sadly for the marketeers and their media whores, more Americans play the ponies, gamble at casinos or play the lottery than invest in stocks, bonds or commodities. We've been programmed to be risk-takers and the stock market - try as it might - just seems to many to be a rigged game for rich guys in suits and ties and fancy women in shiny, tight-fitting business suits.

Thus, we have these dull markets, in which the major brokerages make war with each other via the computer algos, following each other into what eventually becomes a black hole, a void, a nonsensical, immaterial, valueless dump. That's what our stock markets have devolved into, especially after the crash of 2008-09. The major indices may have come all the way back in the four-to-five years since then, but all that money has been sucked out of the market by the brokerages and hedge funds via bonuses. It's common knowledge that the average investor usually gets screwed unless he/she is either very careful or very smart. There's just no way to win a rigged game. As the old adage goes, "if you're playing a game of poker and you don't know who the mark is, chances are it's probably you."

The general American public is simply not that stupid. After being burned by the high-tech Wall Street crooks in 2000, 2001 and again in 2008, they have not returned. Some maybe, but they're a small minority, mostly younger folks who don't know better or older people with money to burn, potentially. Paper losses still sting, and, if there's another severe downturn in the markets any time soon - an event long, long overdue, according to fundamentals - they'll be gone for good as well.

With all the scams, crimes and untold misdeeds that have become all-too-common on Wall Street - without, incidentally, any criminal prosecutions - is there any wonder that average people with money are still shy about investing in stocks? In a perverse way, thats why this market must and will likely continue to defy gravity and levitate to higher and higher levels: because another crash would destroy what little bit of confidence is left in the ultimate confidence game.

So, now that the banks are all sufficiently recapitalized (supposedly) and everything in America is just hunky-dorey, Wall Street may be looking itself in the mirror and wondering if they've taken too many scalps over the past few years. Maybe they'll keep the liquidity-driven, non-fundamental, irrational exuberance going for a while longer, but slowly, much more slowly.

Or is it time to turn it over again? Wash, rinse, repeat...

Dow 15,091.68, -26.81 (0.18%)
NASDAQ 3,438.79, +2.21 (0.06%)
S&P 500 1,633.77, +0.07 (0.00%)
NYSE Composite 9,437.17, -5.59 (0.06%)
NASDAQ Volume 1,605,809,375
NYSE Volume 3,124,652,250
Combined NYSE & NASDAQ Advance - Decline: 2673-3792
Combined NYSE & NASDAQ New highs - New lows: 475-30
WTI crude oil: 95.17, -0.87
Gold: 1,434.30, -2.30
Silver: 23.70, +0.038

Computer-driven Market Continues to Defy Gravity

Following Apple's huge beat on first quarter earnings after yesterday's closing bell, nothing was going to stop the Wall Street horde from bidding up everything tech and everything else, for that matter.

Stocks roared out of the gate, despite the worst durable goods orders in more than three years. The 4.2% decline for March was the worst print since January of 2009.

Even such a negative report on a critical indicator could not stop the flurry of computer-driven orders (now a full 83% of the total market) from diving headlong into equities. Apple (AAPL) opened the trading day more than 50 points to the upside (nearly 9%) and held steady through the remainder of the session, finishing with a gain of 49.72 to close at 610, rendering the sharp losses of the past two weeks to the dustbin of history.

When the FOMC announced no change in interest rate policy - keeping the targeted federal funds rate at 0 to 25 basis points - and little change in the wording of their statement (though slightly more hawkish), there was barely a reaction, as computers programmed to buy don't react to announcements of no change to a failed macro-economic policy.

This is truly not your father's stock market. Algorithmic trading has turned what once was the engine of the financial world into a complete farce where humans have little to do or say and fundamentals do not matter. There is rarely a reasoned reaction to any economic news, only an incessant grind higher. In addition to the computer-driven market dynamics, the advent of weekly options trading has turned US markets into a carnival that would give honest casinos a bad name.

Daily swings of enormous percentages are now the norm, as the algos follow each other into buying patterns that do not recognize downside risk. There is no place for the individual investor as the machines have a huge advantage in both timing and speed of execution, which is why stocks trade more or less on the futures, causing massive gaps to either the upside or downside upon market opening, locking out small limit orders. There is no way to play in such a controlled sandbox, as any gains will already be taken by the HFT machines and their controllers before an order can be properly executed.

That is why volume will continue to remain on the light side. Individual investors stand no chance of making profits and have stayed away, despite the outlandish and often ridiculous gains.

Global thermo-nuclear war could break out and the computers would still trade stocks higher. It's like a bad Terminator movie, in which the puny humans are no match for the pre-programmed droids.

Dow 13,090.72, +89.16 (0.69%)
NASDAQ 3,029.63, +68.03 (2.30%)
S&P 500 1,390.69, +18.72 (1.36%)
NYSE Composite 8,070.84, +82.82 (1.04%)
NASDAQ Volume 1,697,138,250
NYSE Volume 3,981,364,750
Combined NYSE & NASDAQ Advance - Decline: 4223-1395
Combined NYSE & NASDAQ New highs - New lows: 215-42
WTI crude oil: 104.12, +0.57
Gold: 1,642.30, -1.50
Silver: 30.36, -0.39

Greece Will Not Default... This Week, Maybe Next

The Markets

All you need to know about today's "out of the blue" rally.

According to a Bloomberg report:

"Greece is an integral part of the euro area and recent decisions to meet budget targets will help shield the economy," the Greek government said in a statement today following a call between Greek Prime Minister George Papandreou, German Chancellor Angela Merkel and French President Nicolas Sarkozy.

...and with that, it was off to the races for the algo-spitting machines which double for a perfectly-functioning market.

Seriously, there was nothing other than that, oh, well, both PPI and retail sales figures were unchanged from the prior month, so nothing to see, there, really, move along. Something (not sure what) spooked the machines at about 3:30, just after the major indices hit their highs of the day and were careening toward an even bigger ramp up, but whatever it was, it took 140 points off the Dow and made today's extraordinary rally look... ordinary.

So, if reading the Wall Street tea leaves correctly, all that has to happen is for Greece not to default and we'll see Dow 20,000 in a matter of months. That appears to be the general herd mentality.

Just for a reference point, take a look at how far below the April highs the S&P, NASDAQ and Dow are and then rethink that strategy of buying everything that has momentum, like Netflix or Apple or maybe LuluLemon. Here's a hint: the Dow closed at 12810.54 on April 29, the high for the year, and, since we're checking, the close on Decembre 31, 2010 was 11557.51, so we're down for the year and about 1500 points off the high.

So, when Greece does default - because they surely will at some point - whether it be orderly or not, what will stocks be worth then?

Dow 11,246.73, +140.88 (1.27%)
NASDAQ 2,572.55, +40.40 (1.60%)
S&P 500 1,188.68, +15.81 (1.35%)
NYSE Composite 7,199.12, +89.17 (1.25%)
NASDAQ Volume 2,300,166,500
NYSE Volume 4,961,128,500
Combined NYSE & NASDAQ Advance - Decline: 4804-1800
Combined NYSE & NASDAQ New highs - New lows: 52-110
WTI crude oil futures: 88.91, -1.30
Gold: 1819.70, -14.50
Silver: 40.69, -0.44