Oil’s muddling partly due to surplus, partly due to refinery strike but may also have a lot to do with “spoofing” by HFTs, others says Wall Street Journal.
WASHINGTON, February 23, 2015 – It was another lackluster Monday on Wall Street today as stocks wobbled around in negative territory with considerable sound and fury, signifying nothing.
According to the rubes in the financial press, the main excuses for today’s essential inaction were some kind of word on what the Communist Greek government would be sending the EU as its current proposal to resolve its short-term financial mess; waiting for Fed Chief Janet Yellen’s upcoming oracular pronouncements before Congress commencing Tuesday; and the usual irrational up-and-down movement of oil prices, which, in the case of Monday trading, happened to be down.
It’s all a little bit like our frequently-used metaphor here, “Waiting for Godot.” Or maybe like the hapless guy in that TV pizza commercial with the phone glued to his ear. He sits there staring vacantly—on hold—waiting to find a live person to take his order as the happy, recorded jingle sings its little tune, “Waiting and holding and waiting and holding, for the rest of your life…” That about fits the bill for describing today’s market.
The current oil surplus, the growing U.S. refinery strike, and other issues haven’t been helping out Jed Clampett’s favorite naturally occurring substance, of course. But with all that’s been going on, the activities that WSJ delves into today aren’t exactly encouraging for small investors who are at least trying to hold their own.
Based on data from the Commodities Futures Trading Corporation (CFTC), the Journal put together a nifty chart explaining how spoofing in the oil patch and elsewhere actually works. We managed to screen grab a copy of the chart from ZeroHedge, which also reproduces it in one of their screeds today—as do we in our header graphic above.
Essentially, it’s the same game we’ve been yelling about in this column for what seems like years. Using high speed computers and premium bandwidth and often connected directly to stock and commodity exchanges, rich traders and HFTs happily place huge orders either above or below the market at incredible speed in order to lead average-speed traders and institutions to overbid when buying or underbid when selling.
But using tremendous speed (and likely some sophisticated software assists) the clever miscreant pulls (cancels) the essentially phony orders he’s placed and actually reverses the trade, either selling to the unknowing victims at a higher price than the market really warrants, or buying from other victims at a price lower than what they could justly expect.
That’s what’s called “spoofing” in the market, which is essentially the same kind of action as intentionally drawing the opposing team offsides in football. In football, however, your team gets a penalty for drawing the other team offsides if the referee catches you.
On Wall Street, pretty much, neither the exchanges nor the government generally catches you, however. Or, if they do, you get a little slap on the wrist, like maybe not being allowed to play in the exchanges’ trading sandbox for a month or two. Big whoop.
Like nearly everything else in 2015, the games people play, from banking to mortgages to investing are increasingly rigged in favor of those who have vs. those who have not. We are slowly, surely courting some kind of disaster here, and the longer it takes for people to wake up, the more violent their reaction will be.
No doubt you saw plenty of this kind of activity in today’s trading. We could go on about how damaging this is to the public’s confidence in the government and institutions, but when we do, it only ends up making us feel like the hapless Trojan prophetess Cassandra whose curse was that she was always right, but no one ever listened to her. So for now, we’ll simply say for the umpteenth time, this can only end badly.
If we get a little more clarity tomorrow, we may have a few trading ideas. But as for today, the market’s already closed as we write this, and there’s nothing much to say for it. If you weren’t paying attention to today’s action, that was likely your best and wisest move.Click here for reuse options!
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