Stocks in ‘widening gyre’ as HFTs play Ebola, headline risk

Stocks in ‘widening gyre’ as HFTs play Ebola, headline risk

Halloween on Wall Street.
Is Halloween coming early this year on Wall Street. (Composite image by Ponick)

WASHINGTON, October 8, 2014 – It’s been getting scary out their in the real world. Texas logged its first Ebola death Wednesday morning amidst the Obama Administration’s continuing inept response to what’s going on.

The logo above, which we borrowed from this morning’s Drudge Report, says it all in that regard. Adding this morning’s “blood moon” lunar eclipse to the picture, you can see why it’s not just investors who are getting spooked. It was, like, an omen or something, seriously.

Elsewhere, commodity prices (except for coffee) continue to collapse as bond prices wobble, both often harbingers of potential recession.

And, of course, the Fed is cautiously threatening to raise interest rates. Lest we forget, the last time this happened in similar circumstances was in 1937. That sequence of unneeded anti-inflationary actions by the Fed, conveniently occurring after the 1936 Presidential elections BTW, plunged an anemic but modestly recovering American economy right back into Great Depression, Round II.

The FDR Administration has never been adequately pilloried for allowing this to happen. But you know who writes the history books. Only the outbreak of World War II finally pulled the American economy out of its pre-Carter malaise for good.

One of today’s feisty commentators on that useful rogue investment blog “ZeroHedge” makes the following cynical observation:

‘When the Fed’s subsidies are removed, prices will adjust, they will adjust immediately, and they will adjust on NO VOLUME’.  Stanley Druckemiller – September 2013, broadcasting precisely how malignant the Fed’s system is, as it enlists the gamers to enrich themselves on the way up, then pummel the sheep on the way down.  Totally an inside game.

Make sure to pass this along to all of the folks who have rather elected to stuff their heads in the sand and point at the Russell [2000 index]… how’s the Russell now, Janet?

If we do indeed get our Black Swan / Ebola crash, conveniently concocted to cull the population, get the sheep in line, and avert any blame from its true owner, Mrs. Debtfire, then make sure to pass this along folks … and the Fed will finally be ended.

Mixed metaphors aside, these nasty observations sum up the innermost secret thoughts of many small investors today.

And with ample reason.

Fast-forwarding to 2014, with ISIS and its new generation of political assassins spoiling for a threepeat, i.e., WWIII, and we have to ask: does anyone see any parallels here, given today’s complacent Marxist Administration in Washington? And for that matter, doesn’t 2014 mark the 100th anniversary of Archduke Ferdinand’s assassination and the subsequent outbreak of WWI?

Want more? On Fox News Tuesday evening, Representative Duncan Hunter (R-CA) told Greta Van Susteren that “at least ten ISIS fighters” have recently been caught crossing the Texas border. How many ISIS fighters didn’t the undermanned border patrol catch. It’s all scarier than this month’s fresh crop of horror films.

Whatever your political beliefs, you have to admit the world is currently in a real pickle as governments world-wide happily dodge responsibility for what’s transpired on their current, lazy, self-centered watch, stretching back at least to 2007-2008. And we’ve only listed the surface damage here.

This downhill-rolling snowball of negativity has been enough for the headline-driven HFTs and their mindless but effective algorithms to send several Panzer Divisions of sell orders into the stock market since the waning days of September. That’s mainly what we’ve been dealing with for at least two weeks now in investment land, with the increasing downside pressure threatening to turn into a rout. The actual value of stocks and promises of future profitability seem to matter little.

Clearly, the powers that be have repaired themselves (the heck with the rest of us) and are trying to reset the system somewhere back near normal. But the real world isn’t cooperating. It’s a little like the opening lines of Yeats’ “Second Coming,” the poem we quoted yesterday. This is how that poem actually opens:

Turning and turning in the widening gyre

The falcon cannot hear the falconer;

Things fall apart; the centre cannot hold…

The center is certainly not holding very well today. The market opened rather nastily down Wednesday morning, although as of 1:00 p.m. Wednesday afternoon, averages are mildly up. But look for sellers to show up a bit after 2 and clobber this little ray of sunshine, or at least slow it down. There’s just no good news here, at least today.

UPDATE: Mr. Market like to make a liar out of commentators and analysts, and he just did so this afternoon. The Fed’s Open Market Committee (FOMC) made nicey nice remarks in its just-released report this afternoon and now the market is rallying big time. We don’t trust this move, but there you go. Our observations and advice still stand unless downward sloping charts change direction and decide otherwise.

Today’s trading tips

Again, very light in this department today. We’re dealing with another confusing week. We want to BTFD (“buy the effing dips”) as more cynical investment blogs would have it. But then, that BTFD strategy, which mostly worked wonders through about July 1, 2014, is becoming an iffy proposition as little dips become bigger dippers.

We continue to pick up shares in the short S&P 500 ETF (SH) on any decent rally in order to hedge our somewhat too-large positions. Utilities have been doing okay, and select REITs have been holding their own.

But everything else is, well, scary right now. We could be on the edge of a decent buying opportunity, true. We continue to be short-term oversold on a day-to-day basis.

But intermediate term, we are still apparently in the throes of a correction and it’s not over yet. The occasional rally is sometimes good for a quick trade. But unless you’re doing this full time at your own machine, the opportunities are gone in a millisecond (or a nanosecond) so that can be risky.

Best not to be aggressive here and lie low in the weeds while protecting those positions you still like with SH for now.

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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17