DJIA off 300+ points as stock market carnage continues

Even the hyperconfident E-Trade Baby is shaken by today’s vicious volatility as bearish HFTs and short sellers destroy value in headline-driven stock dump-fest.

E-Trade Baby spooked by market action.
The E-Trade Baby gets spooked by today's market action. (Screen shot from College Humor YouTube video parody.)

WASHINGTON, January 14, 2015 – After Tuesday’s roller coaster ride on Wall Street—market action that saw averages whipsaw from a nice, positive open to a miserable crash at the close—today’s markets are picking up where the bears left off. The nasty ursine monsters returned this morning to rip and tear at Tuesday’s already shredded stock carcasses for whatever pickings were left.

The results ain’t pretty. As of approximately 1:30 p.m. EST Wednesday, the Dow Jones Industrial Average (the DJIA, aka “The Dow”) is off over 300 points. The more representative S&P 500 is down around 28 points, and the tech-happy NASDAQ is being mertilized once again, down nearly 50 points as we write this, around 2 p.m. EST.

Oddly apropos to today’s action, we discovered this College Humor YouTube spoof of those popular E-Trade Baby commercials. Taking a good look at his computer trading platform, the Baby discovers that, like us, he’s not having a nice day today:

One YouTube video is worth a thousand words. Now that you, the Baby and the Maven all understand today’s Wall Street action, let’s examine what’s really going on.

Individual traders like us are simply getting pancaked by the supercomputers today, a Borg-like war machine, if you will, that even Arnold’s Terminator would be powerless to resist.

Seizing on the continuing turmoil in the oil patch—yesterday’s topic here—the machines (aka, the HFTs or “high-frequency traders”) have been happily up to their usual game of spoofing quotes, inducing non-HFTs to sell positions they’ve already shorted, creating bigger and better profits for the mega-rich on the downside.

Since the Europeans have disappointed once again, it seems, by failing to get involved in QE-style market manipulation and since the Fed still seems intent on raising interest rates at some point in 2015, financials are getting hit good and hard this week as earnings season numbers for banks large and small are looking like they’ll be anemic. At best. This adds more fuel to the HFT’s sell-on-the-headlines algorithms.

Meanwhile, retail looks to have been a bust, and there’s no evidence John and Josephine Q. Public are spending the lucre they’ve saved at the gas pump on more stuff. After all, they still have real debts to liquidate, maybe some time around the mid-21st Century mark.

So with banking and retail allegedly in the tank and oil apparently headed for oblivion, the HFTs are transmitting their usual phony “we’re all going to die!” message, helping stocks to cut and run with investors heading for the nearest exits. The mood today has become, “Sell everything, and run for your lives!”

Simple, easy market manipulation and volatility are the collective result. This creates the kind of whipsaw trading action HFTs love, aided and abetted by their phony “liquidity” games, geared to destroying serious investors and retirees left and right. It’s all turning into a nasty video game without a Super Mario avatar to save us. Of course, the way it’s going, when we’ve all sold our last stock, the HFTs will jump back in to scoop up the bargains we’ve left behind in our haste to escape. Nice game, eh?

This is all kind of disgusting when you think about it. And our all-knowing, all-wise, too-big-to-fail government is failing miserably in the small matter of regulation since the SEC pretty much allows the machines to run amuck. They continue to enrich the 1% elites and the politicians they own by extracting what’s left of middle class wealth and spending it on themselves and their rich friends.

Think about this the next time you’re tempted to pull the lever for your favorite 30-year incumbent in the next election. Sure, he’s a “great guy.” But how did he get all the money he needed to remain in office that long?

Today’s trading tips

What follows isn’t really a series of trading tips. Instead, it’s an example of experimenting with the current market mess by going on offense rather than cowering in the corner and playing feeble defense.

The Maven actually made some aggressive moves this morning. He doubled-down on a faltering position in XLV, the Healthcare ETF, and added to his three favorite big pharma holdings, Pfizer (PFE), Merck (MRK) and Swiss mega-giant Roche (RHHBY), all three of which have been holding their own in the current debacle even to the point of being in the green on a day like today, if only moderately so.

On the advice of one of our trading services, we’ve also been building positions in the PowerShares Senior Loan Portfolio ETF (BKLN). This ETF (Exchange Traded Fund) provides a decent, stable yield by holding and/or tracking primarily high-grade corporate debt instruments with a maturity of 5 years or less—a good defense in a market that’s still goosey about potentially rising interest rates.

We’re also gathering, little by little, shares in SPLV, the PowerShares S&P 500 Low Volatility ETF. This is an ETF that tracks the S&P 500—generally acknowledged as the most representative of market averages—but does so by giving heavier weighting to “low volatility stocks,” i.e., those stocks with a lower beta that don’t move as crazily as many others. This ETF keeps you in the game if you don’t mind moderately underperforming the underlying index, whether up or down. In other words, when the S&P 500 gets whacked, you’ll only get whacked a little bit. And when it gets juiced, you’ll only get juiced a little bit.

SPLV still gives you a ride on the S&P 500, but one that’s considerably less scary than what the real average, represented by the SPY ETF, is currently providing.

Another reason we’re currently favoring BKLN and SPLV is that if you’re a Schwab customer like the Maven, you can trade these puppies without a commission, which adds a bit of extra performance to the mix.

This isn’t an advertisement for Schwab, BTW, just a statement of fact. Other discount houses also offer deals on some ETFs or plan to, so check current offerings. Whatever commission-free trading you can get gives you what we think is a necessary advantage in such a nasty and thoroughly HFT-gamed market environment.

That’s it for now. We’re heading back into our secret concrete bunker for the rest of the trading day. Good luck!

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