WASHINGTON, February 7, 2016 – Sunday night, along with Mrs. Maven, yours truly watched a moderately interesting “historical” show via Amazon Prime. The rather interesting and more or less true subject concerned those ancient Viking “special forces” units known as “the berserkers.” These fearsome warriors were known for their crazed, lethal pursuit of the enemy on Viking raids—the enemy being loosely defined as anyone who wasn’t a Viking. They reminded us of those 21st century machine trading berserkers—the HFTs—who are set once again to slaughter Monday’s markets
English and Irish villagers’ flight instinct was usually the right answer when these berserkers showed up. Today, any “villagers” who are still trying to hold onto stocks in 2016 have been fruitlessly trying to hold off a sustained attack on the markets by today’s berserkers: the high-frequency trading (HFT) machines and firms that now account for upwards of 70+ percent of daily stock market trading. Perhaps once again, flight, not fight, is the right answer.
Both HFTs and institutions dumped stocks for almost the entirety of 2015, fearing the initial threat of a September Federal Reserve interest rate increase that only materialized later. We must now assume that HFTs and many institutional portfolios are already light on the long side, meaning that increasing selloffs in 2016 are now being worsened by machine-shorting on a massive scale.
HFTs and some institutional berserkers launched waves of selling attacks in January, driving stock sector after stock sector into rolling corrections. February hasn’t been any better, save for one nice but false rally. Now, after a brief respite, and still operating with impunity, the berserkers are ready, it seems, to finish off any accounts still standing, if Friday’s extreme downdraft was any clue.
Markets were already looking scaring at Friday’s opening bell. But then, tech was collectively taken out back and shot. The catalyst? LinkedIn Corp. (symbol: LNKD). After reporting OK earnings for their latest quarter, the company gave a realistic and rather sober look at its projected earnings path in FY 2016. It wasn’t negative, but it wasn’t positive either, as the company doesn’t see this year’s economy as being very encouraging for growth.
Well, that was that. In short order, all the powers of hell were unleashed on LNKD, which was nearly vaporized by a vicious wave of selling. Friday, nearly 42 million shares of the company’s stock were dumped, via sell orders that intensified with what was clearly a load of machine-induced short-selling. LNKD closed at $108 and change per share, off $83.90 on the day, a whopping 44 percent to the negative. Adding insult to injury, LNKD dropped another $1.25 (-1.15 percent) in after-hours trading.
It didn’t take long for most other stocks—particularly those in the tech sector as represented by the S&P 100 and the NASDAQ—to get the hint. Both averages were down sharply. The NAZZ was off a sickening 3.25 percent, plunging a cataclysmic 146.41 points in just one lousy day.
Since Friday’s trade offered few opportunities for relief, we can only assume that the coming week will start with a renewed attack by the machine berserkers. They will aim to obliterate any stocks still standing on the field of battle after last week’s relentless slaughter. Monday morning futures are already looking very bad.
For this reason, we’re offering two additional columns today, one offering a look at potential defensive purchases, the other suggesting what’s likely to get hosed—meaning you should probably dump investments in this area.
Next: Bear market defensive buys.