Market Commentary: Markets Melt Off Highs, HFT Manipulation Suspected

January 7th, 2014
in Gary's blogging, midday post

Written by

Midday Market Commentary For 01-07-2014

Around 11 am the markets ran out of enthusiasm and began to melt downward. What was supposed to be a negative session, turned out to be a HFT computer manipulation day. I wish the HFT computing and Dark Pools were regulated as they are a continuing thorn in the investors side.

By noon volume was anemic, the $VIX was flat line at 12.96 and investors were shaking their heads in disbelief in this casino market place as it continues to melt downward.

Follow up:

This morning, stocktiming published an interesting view of institutional buying and selling that is important and all too often overlooked. But remember the institutional investors are NOT always right and they can not go to cash when they know well the markets are going to 'correct' downward. The best they can do is hope to average things out later.

Another thing to remember is the 'BIG' guy's are not the one that panic and cause the markets to crash. Also consider, the little guy that does panic selling, is not a prevalent player at this time. Because of the current market bullishness, more and more 'sheeples' are joining in everyday now and that aspect needs to be considered as we move further into 2014/2015 time frame.


When does Up become Down, and when does Down become Up?

The VIX is one indicator where the market does the opposite of what it is doing = Market up; VIX down, and Market down; VIX up.

But there is another indicator that does the same thing with with more accuracy.

What is it?

It is the trending of Institutional Selling activity. For a current example of what that timing relationship looks like, see today's chart below.

When looking at the chart, note the red and blue trend lines. When the blue line is above the red line, Institutions are in a down trend on their selling activity. Since they own a majority of the stocks, a pullback on Institutional Selling (a down trend on selling) allows" the market to move higher even if only the smaller retail investors are buying.

Conversely, when the red trend line is above the blue trend line, the Institutional Selling is in an up trend and that translates to the market going down or moving sideways at best.

Why are we bringing this relationship up now?

The answer is because the red and blue trend lines were merged yesterday. They can't stay in this condition very long, so it indicates a change is coming. If the Institutional Selling increases today or tomorrow, the trend can shift to the upside for Institutional Selling which will hurt any up movement in the market. What happens in the stock market is dependent on what happens to this Institutional Selling trend.

The moral of the story? Never go against Institutional Investors. They are too large and carry too much clout, so stay with the trend of what they are doing relative to their selling action.

The short term indicators are leaning slightly towards the hold side at the midday. I would advise caution in taking any position during this volatile transition period as the sudden reversals can make any trades worthless.

The longer 6 month outlook still remains 40-60 sell until we can see what the effects are in this almost nothing start of the Fed's 'Taper'. By March investors should know how the taper is going to work out in relationship to the stability of the US financial markets and their ability to not to slide downward. For now, I am continuing to expect weak to negative markets for the foreseeable future.

Here is the quandary some investors have now. They have bet on the QE program to bolster their profits and knowing full well they may see some eroding of profits over the next few months, so what should they do? Start reducing positions now, my choice, or let profits ride a bit longer? I would be afraid that if a serious 'Black Swan' popped up, the market decent would wipe out a lot of profits. This 'house of cards' the Fed has built is fragile and would not take a lot to tear it down.

I would also take chart and other technical indicators with a grain of salt for the time being and watch what the Fed does over the next 4 months. Removing 10 billion from the bond buying program each month isn't going to do much in reducing the QE program in the beginning, but halving it in 4 months certainly will - IF - the Fed's continues the taper program.

My instincts tell me that the Keynesian's are going to be reluctant to stop their grand financial experiment and will want to taper the taper within the next several months - especially if the employment rate increases.

Also, many pundits have stated that we may have seen the top - but I wouldn't count it as long as the Fed continues to hand out 'Market Viagra', even if it has been reduced somewhat! I would like to see a blowout candle (shooting star) to verify a top along with heavy volume to signify a market top.

The DOW at 12:15 is at 16529 up 103 or 0.63%.

The SP500 is at 1836 up 9 or 0.51%.

SPY is at 183.36 up 1 or 0.56%.

The $RUT is at 1158 up 11 or 0.98%.

NASDAQ is at 4146 up 32 or 0.79%.

NASDAQ 100 is at 3550 up 23 or 0.65%.

The longer trend is up, the past months trend is bullish, the past 5 sessions have been negative and the current bias is negative.

How Oil Really Gets Priced

WTI oil is trading between 94.18 and 93.37 today. The session bias is positive and is currently trading up at 93.99.

Brent Crude is trading between 107.69 and 106.88 today. The session bias is negative and is currently trading up at 107.44.

Gold fell from 1244.60 earlier to 1224.80 and is currently trading up at 1227.80.

Here's why copper has lost its indicator role

Dr. Copper is at 3.361 rising from 3.343 earlier.

The US dollar is trading between 80.75 and 81.10 and is currently trading down at 80.87, the bias is currently negative.

To contact me with questions, comments or constructive criticism is always encouraged and appreciated:


Written by Gary


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