Wednesday, October 05, 2011

Explosive rally because...

To be honest your guess as to what triggered yesterday's 3:15 rally is as good as any that you'll hear today on TV. 

Let's go through the "reasons" you'll hear today:

1) The EU bailout rumor du jour - There was a 3:10 article posted at the Financial Times which hinted at a brand new expansion of the European bailout to save their bad banks.  That rumor seems to have been refuted today but it may have been a catalyst that at least contributed to the start of a turnaround.

2) Apple iPhone 4S - I've made it clear before that I'm no Apple fanboy, but I REALLY don't get the passion for this phone.  As far as I can tell, this isn't the phone everyone wanted, the biggest improvement is voice search that no one likes or uses and they improved the internal chipset a bit.  If Microsoft had an announcement like this they would have been ridiculed mercilessly in the media but Apple somehow gets a pass. I'm waiting for the day when they announce "We're not changing the iPhone but we are introducing a BRAND NEW BOX THAT CONVERTS INTO A PAPER AIRPLANE!!! That will be $599 with a 2 yr service contract, please pay the cashier at the front".  People would still be lined up around the block for it.
Apple is so widely held (for example it represents almost 2.5% of the equity assets of the ENTIRE NYS Teachers Retirement fund) that it can do no wrong until one day it does (see Netflix for past practice).

3) The market finally broke through various support barriers which seemed to open up the possibility of a true flush back to 2008 or 2009 lows.  This was very scary from a technical perspective and there was certainly a hope that we'd claw back above those levels before the end of the day.  I think when you combine the FT rumor, the Apple bounce and the market's need to get back above 1120 on the S&P 500, you have a recipe for 400 pt rally in the last half hour of a day which is what we got yesterday.

This is lifted straight from the Big Picture and it's pretty "Inside Baseball" re: Wall St. trading but it speaks to how the game is rigged against the small investor.

"What does it say about the state of our exchanges that trader on proprietary and execution desks now can buy a software program to alert them to the activities of Co-Located Algo Servers?

“HFT Alert, the first real time software designed to detect high frequency and algorithmic trading systems. HFT Alert identifies when these trading systems are running and what stocks are being affected. HFT Alert can detect several types of algorithms as well as stocks experiencing elevated quote rates associated with algorithmic trading.”

We are now apparently in a silicon based arms race to learn when quotes are real and when they are spoofed faux quotes driven by HFT algos designed to increase volatility.

The exchanges once operated fro the greater good of the investing public, akin to nonprofit utilities. They are now hellbent on chasing away private investors who will eventually learn that this is a zero sum game, and co-located HFTs are a tax on saving and investments."


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