Closing Market Commentary For 12-06-2012

Markets closed up and mostly flat. The NASDAQ led the averages and the Russell 2000 was the laggard which leaves me wondering what is going to happen next.

Obviously, traders are lacking and I suspect there are many speculators jumping in just before the close. Otherwise, it was a relatively quiet day for the markets remaining in a tight trading zone.

Most know my disdain for the HFT (High Frequency Trading) algo computers and have repeatedly written that they should be either outlawed, taxed out of existence or disbanded altogether. Here John Lounsbury writes a compelling article how the “HFT firms are taking money from the market and, on net, decreasing liquidity. This is akin to paying the local mob to protect your store while they are actually doing the shoplifting.”

HFT Study Pulls Back the Veil and the Bride is Ugly

Econintersect: A report still in draft form written by two professors and a CFTC (Commodity Futures Trading Commission) economist presents detailed analysis of trading data by high-frequency trading  (HFT) firms.  The report details the study of the market by examination of specific trades.  One conclusion is that because HFT that reduces market liquidity (classified as “aggressive trading”) is more profitable than HFT which increases liquidity (classified as “passive trading”). Econintersect estimates from the data presented in the report that the ratio of [profitability] for aggressive trades vs. passive trades may be as high as 4:1.

 

The RRR** has been narrow at the opening bell for the past several months and continued the trend again this morning and throughout the session. This trend makes predictions of movements during the session nearly impossible and trading becomes futile and unprofitable.

As long as market volume remains light or the trading range is narrow, one can expect successful trading to remain elusive. The RRR** has been wider on volatile sessions lately and is expected to become more so as the year ends, but a lot of guessing still remains. Correctly ‘guessing’, of course, is the tricky part of the successful trading equation. Any trades today will probably end up on the meager side of profitability if you are lucky as most trades have been less than optimal during this past year.

I also have issues with some pundits writing almost every day that there are setups for day trading. This may be true enough, but the trading range is so narrow that way too money has to be put on the table just to get back meager gains. Do not fall into the trap of money burning a hole in your pocket, sit tight better days are coming. Watch for increasing volume to signal improved trading.

Swing trading is also at your own risk for all the reasons mentioned above. Because the market is at a crossroads of sorts, I would prefer to sit on my hands as the markets are currently untradable. Guessing where the market is going to be tomorrow or next week, at this time anyway, can be a foolish and costly endeavor.

The DOW at 4:00 is at 13074 up 40 or 0.30%.

The SP500 is at 1413.94 up 4.66 or 0.33%.

SPY is at 141.97 up 0.47 or 0.33%.

The $RUT is at 821.79 up 1.19 or 0.15%.

NASDAQ is at 2989 up 15.57 or 0.52%.

The longer trend is up, the past months trend is bearish and the current bias is up.

How Oil Really Gets Priced

WTI oil was down today and is currently trading up at 86.39 trading between 88.22 and 85.76 and the bias is positive.

Brent crude was down today and is currently trading up at 107.05 trading between 109.15 and 106.62 and the bias is positive.

Gold was choppy this morning. Currently trading up at 1698.81, trading range is between 1702.85 and 1685.88 with a sideways bias.

Dr. Copper is at 3.64 down from 3.69 earlier.

The US dollar rose from 79.73 earlier to 80.31 and is currently trading down at 80.23.

@SA:

WTI crude (USO) slips further in relevance with the Energy Department dropping the use of the benchmark for its annual oil price forecast. Brent crude (BNO) – now selling for $21/barrel more – will be used instead. “WTI has become a misleading price indicator for global economic growth,” says researcher Gordon Kwan.

The 500 at the close.

The DOW at the close.

The NASDAQ at the close.

** RRR = Risk Reward Ratio

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

[email protected]

Written by Gary