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Thursday, May 7, 2015

Daily udpate 5/7 Transports

After a little struggle early this morning the bulls managed a bounce.  I think most people were hesitant to put on any positions in front of the employment report tomorrow.

The bounce fell just a tad short of the 6 and 50 SMAs.   Obviously the bulls were not very ambitious.  There is more room to bounce up to the 18 SMA.  Whether we do or don't bounce further depends on the employment report and the reaction to it.  Breadth was +55% pretty much inline with the size of the up move.  There were 29 new highs and 56 new lows.  Today looked like a dead cat bounce, but again that may all change tomorrow.

The futures are clearly trying to hold support at the upper green line.  Will it or won't it hold?  They managed to close above the 100 SMA, but we need confirmation for an upside break.

The short term trend is down across all indexes in the trend table.  Both the daily and futures charts are still bearish looking.  The bulls need to prove themselves before getting excited about the long side.  We should know a lot more tomorrow night.

Lets take a look at the DJ-20 transport index.

We have a very clear support line with many touches over the last 6 months.  The bulls are trying hard to hold on.  Obviously a breakdown would be very bearish for this index and possibly for the broad market.  This one and IBB are key indexes to watch in addition to our usual ones right now.  This month we have formed a potential double bottom on the support line.  If they can't rally them from this formation I don't think they will.

Rant on:
Every know and then things happen that just don't make a lot of sense to a logical person like me.  A couple of weeks ago there was an arrest related to the flash crash back in 2010.  If you are one of the few people that did not hear about it you can learn more here.  'Flash Crash' arrest shakes investors' confidence  The basic idea is that some guy in London "spoofed" the market into a crash.  I thought that was totally ridiculous.  I question why it took 5 years to finger the guy.  I also could not figure out a motive for the government to make this move.  Notice the headlines that got splashed about everywhere.  Investors confidence is shaken.  If that was not bad enough I found there is now more.

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of a civil enforcement action in the U.S. District Court for the Southern District of New York against Heet Khara and Nasim Salim, residents of the United Arab Emirates.  According to the CFTC’s Complaint, Defendants engaged in unlawful disruptive trading practices known as “spoofing” in the gold and silver futures markets by placing bids and offers with the intent to cancel them before execution.

Now they are trying to finger a couple of people in the middle east for spoofing the gold and silver markets.  Notice these people were all outside the U.S.  Apparently spoofing is perfectly legal if you are in the U.S.  We have many Wall Street firms with their computers sitting right next to the exchanges for speed "spoofing" about every stock that trades with reasonable volume.  Only we call it high frequency trading. You can easily see this by looking at level 2 data.  I have not looked at it in  years because of the "spoofing".

Here is one definition of HFT.

DEFINITION of 'High-Frequency Trading - HFT'

A program trading platform that uses powerful computers to transact a large number of orders at very fast speeds. High-frequency trading uses complex algorithms to analyze multiple markets and execute orders based on market conditions. Typically, the traders with the fastest execution speeds will be more profitable than traders with slower execution speeds. As of 2009, it is estimated more than 50% of exchange volume comes from high-frequency trading orders.

Some of those complex algorithms involve putting orders out there and canceling them almost immediately to see what gets executed and what doesn't.  The only difference between that and people "spoofing" is that the computers can do it much faster.  Is that enough of a difference to make it legal in one case and not the other?  The government isn't doing anything here to make the markets better for human traders.  They are generating lots of headlines about rigged or manipulated markets though.  What possible good does that do?  Here is my question.  Millions of investors everywhere have been reading headlines about rigged markets and people losing confidence.  What do you suppose might happen if the market gets some serious volatility to the down side?  Are retail investors that have been told markets are rigged going to be as happy to hold on through it.  I am having a difficult time seeing anything positive about these actions.  Will the next move be finding somebody spoofing the bond market.  Hey why not.  Lets just get everybody so they have no confidence in any market anywhere and crash them all.

Rant off:


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