Friday, May 07, 2010


Yesterday was the greatest "How's Your Father" of all time.

There is alot for me to talk about today so let's dig into all aspects of what just happened.

First of all let's talk about the issue of the electronic markets. The story going around is that was a keypunch error in a Dow stock with a "b" instead of an "m" which effectively locked up that stock. Once that happens there are a ton of arbitrage related programs which automatically kick in and generate sell orders elsewhere, so we got the vacuum effect that took place. I am sure the poster who attempted to tell people in here recently there is no risk in arbitrage got wiped out yesterday. However, he does not really trade anyway and is a fraud, so in reality he lost no money. However, people who do arbitrage surely were annihilated yesterday. There is no way to make the minute to minute adjustments needed doing that type of trading when markets become illiquid. This is why whenever anyone tells you there is no risk, run don't walk from what they are pitching.

Now on top of this we have the pissing contest between the exchanges this morning about who is to blame for all of this, the NYSE or the NASDAQ? The answer is neither. I have been writing in here for months that when markets are artificially manipulated to the degree that this one has been by the PPT, not allowing virtually any pullbacks of any kind by their last hour buy programs literally every single day, monster air pockets are created. When all of the sudden a huge volume spike happens there are no support points in the market, hence you get this type of thing which was very similar to 1987 if you look back at the charts. The market was already down 250 points or so before the error even occurred and rolling over fast. The mustard was already off the hotdog. In reality we would have been down more yesterday had the error not happened. The reason is that programs also kicked in for the opposite direction long trade when we extended so far down. Had that not happened and we had just gradually sold off, we probably had a 500 + day on our hands. In reality we should thank the clerk who mistyped the order.

Now we know that the PPT has done this because they are trying to create the false illusion that Barrys programs are saving the economy when in reality they are ruining it. Everyone feels better about things with the stock market rising so much. They are more inclined to spend thinking all is well and good again. However for those of us who follow things very closely, we know that is a Traveshamockery. This is the whole problem with having an intern in the White House during a time of turmoil. It is like trusting a 25 handicap to make a 6 foot putt to win the Masters, it is just not gonna happen other than pure luck.

On top of all of this we have that idiot in Oregon trying to push a trader tax. Let's think about that. What a trader tax will do is make the exchanges very illiquid like what we saw in that one single stock yesterday, because the traders are going to leave the country. As I have said when you put in a sell order, it will get filled electronically and the closest bid which could be $15 a share less even in a Dow stock like we saw yesterday. When you take away specialists you take away market liquidity. Now this moron wants to penalize traders for things like this when his actions will actually exacerbate the problem. That is the biggest problem we have. We have the dumbest group of decision makers from the oval office on down in the history of this country. If this trader tax goes through days like this will become very common in the stock market. What they will have to do is outlaw trading basically meaning they would put in rules that if you bought a stock you could not sell it other than through a government exchange, which would regulate prices. It would be the only way to avoid this problem.

Now let's look at the SEC skit with Goldman Sachs. How could you trade against the product you were selling that idiot Levin asked? Of course that poor kid does not understand that to have markets there have to be two sides of the trade. To buy you have to have a seller. When he buys his twinkies every day something is selling them to him. Yesterday when the people walk away from one side of the trade there is no market. This is exactly what happened when the stock was offered $12 lower, no specialist was going to touch it there so nobody could sell their stock. Liquidity is important, not something to be targeted and eliminated. If these dumb f's would have just let the markets go to where they wanted to go during 08 we probably would have some more stability by now but instead they created another bubble to stop the reckoning, so we get a day like yesterday.

To make matters worse, today we get that "great" employment report. Does anyone really believe that magically an extra 100,000 jobs were created than anyone was estimating? What a coincidence that is after a day like yesterday. We should just throw all these people in jail and start over. Anyone in the private sector so blatantly altering the reports a few hours before their release to the public would be incarcerated. I would bet my life that number was altered by at least 100k last night due to a "phone call." Just report the facts to us and let us deal with them for god sakes! Constantly lying does nobody any good and just makes things like yesterday continue to happen.

Now let's forget about all of that and just look at where we are. We now have a trend break obviously so it is a sell the rally mode if we even get one. I hope we do but even that doctored report is not rallying the market so far today so another rollover could easily happen. In the past these sharp drops have been followed by sharp 2 to 3 day rallies which are shorting opportunities. Below is an example of one prior setup like this.

You can see the sharp drop, then a sharp 2 day rally, follwed by a dynamite short for 2 days that moved big. This is on my wish list. However, it is also possible we could get very quiet after this and go sideways, I hope not. After the 1987 crash that is what happened and it was a major low. Those are the two scenarios I see as possibilities. For me I am still bored meaning, just not great setups for me. Had I just held all the shorts I had on yesterday probably would have been a 100k day for me, but I have no regrets. Trading during a day like that is a no win situation for anyone, and you are always subject to trades being busted the next day which I am hearing is happening. As a result some of your profits will be taken away by the exchanges once they label the trade prices invalid.

I would suggest as a longer term investor now that if we get that sharp bounce for a couple of days, you exit. The mustard is now finally off the hot dog.

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