Algos Making Hay As Investors Watch Down Market

August 13th, 2012
in Gary's blogging

Midday Market Commentary For 08-13-2012

Markets edged fractionally lower in the morning hours after the 'dippers' melted them fractionally higher in the first 30 minutes. By 10:30 the markets generally descended to the morning lows but staying well within the extremely narrow sideways channel started Monday of last week. The SP500 has only had a trading rage of 21 points and the DOW 173 since then. This crazy and obviously manipulated market casino has a lot of seasoned investors extremely concerned with the most hated rally in recent history.

By 11 am the DOW was off 75 points, the 500 off 6.60 and the Russell 2000 off the most at 8.50. The volume was low touching anemic levels raising concerns to was actually moving the markets. By noon the averages were down but trading in an up and down swinging – mostly to confuse humans. Be sure the HFT algos are making hay.

Follow up:

The RRR** still was very narrow and indicating unprofitable trading, but leaving me to believe we may see some more upside as the RRR** didn't proportionally move with the declining averages. But how much the averages can rise, if anything, remains the question.

The DOW at 12:15 is at 13121 down 86 or -0.65%.

The 500 is at 1398 down 7 or -0.50%.

The $RUT is at 792.62 down 8.93 or -1.12%.

SPY is at 140.19 down 0.65 or -0.46%.

The trend is neutral and the current bias is down.


WTI oil is at 92.71 trading between 92.05 and 93.94 and the bias is positive and up from Friday.

Brent crude is at 113.79 trading between 113.10 and 115.08 and the bias is negative but even with Friday .

Gold is today at 1616.64 trading between 1615 and 1625 with a negative bias.

Dr. Copper is at 3.35 down from 3.40 earlier.

Earlier the USD tumbled from 82.94 to 82.28 and recovered to 82.45.

Asian markets closed down and the European markets are close down.

Many financial pundits, including myself, like to pen catchy phrases to attract the wandering eye and make it appear we are really cunning and ingenious when in reality we don't have a clue either. The catch phrase of “The Calm Before the Storm” has been a favorite of mine for months as I believe it is true, only it hasn't happened yet. This next article illustrates, if it comes to fruition, what may be in store for the markets in the near term.


Olympic Calm Before Coming Financial Storm

It is important to note that markets were also unusually calm during the two weeks of the Chinese Olympics in 2008. The 2008 Summer Olympic Games took place slightly later in August than the London Olympics – starting August 8 and ending August 24.

Only days after the ending of the Chinese Olympics came massive market volatility in September and then seven months of market turmoil.  Similarly to this Olympic year, in Olympic year 2008, gold traded sideways to down in a period of consolidation prior to further gains.

Gold bottomed in September 2008 in euro and sterling terms.  Another brief bout of dollar strength saw gold bottom in November 2008 in dollar terms.

Besides the eurozone crisis (and the significant risk of the German Constitutional Court deciding on September 12th to reject the recently cobbled together alphabet soup response to the crisis (ESM etc etc) and significant instability in the Middle East, there is also the not inconsequential risk from the US Presidential campaign and the upcoming ‘fiscal cliff’.

This next article does not paint a pretty picture, but does point out just how bad things are and how bad things could get. I see it as a wake-up call to shore up the dikes to keep back the floods of economic woes if we don't do something constructive now – while we still have time.


Treading Water on a Sea of Funny Money

Erich Simon sees Quantitative Easing as the death rattle of the U.S. economy. Americans will be taxed just to stay afloat as the financial system edges toward a seemingly inevitable day of reckoning.

. . . we are no longer in a growth economy. Rather, the economy is akin to a mature and declining product life-cycle. We have squeezed the final drop from the last technological apple plucked from the tree of the Industrial Revolution. The Green Revolution is similarly over, leaving behind state-sized swaths of barren, cracked and salt-encrusted clay, growing nothing more than the next generation of genetically modified Soylent Green.

Thus have money-printing and QE become the main ways that government now allocates dwindling natural resources.  This is a tail-chasing frenzy, trying to tinker with the social draw. A potentially bright economic future is being supplanted by Nationalism and police oversight, then by the military state. The vessel is indeed going over the falls, and nothing can save it — not even gold.

During the vast dishoarding of wealth that lies ahead, as the American Dream gets downsized beyond what anyone might now imagine . . .”

And lastly, and you knew the German high court decision would get derailed somehow, news of a lawsuit against the ESM certainly throws a monkey wrench into the time-frame. So maybe not this week, but shortly, we will see how the market reacts to this.


New Lawsuit Filed Against ESM Threatens Further Bailout Fund Delay

The Constitutional Court in Karlsruhe has received a further appeal against the euro rescue package, which could upset the timetable for the euro rescue. According to information from Reuters Online, a group of plaintiffs to the € critic Professor Markus Kerber has filed a constitutional complaint, including an emergency petition. The key message is: Since the last ten days at the European Court in Luxembourg, the complaint is similar to an Irish MPs to decide, the German judges would wait until the spoke on the matter higher court judgment. The original date expected for an announcement, the 12th September, at which they would decide on the fast track in terms of admissibility of ESM and Fiscal Pact was likely untenable.

** RRR = Risk Reward Ratio

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Written by Gary

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