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Mysterious sellers, zombie stocks strike another blow against investors

Written By | Dec 6, 2018
mysterious sellers and zombie stocks

Screen capture from promo video for “Fear the Walking Dead.” (AMC)

WASHINGTON. After checking Wall Street stock futures late Wednesday night before turning the lights out, numbers indicated we might get a modestly positive market open Wednesday morning. BZZT!! WRONG ANSWER!! It seems some mysterious seller or sellers – perhaps zombie sellers of zombie stocks, or even green space aliens – pressed the wrong futures button. Big Time.

At around 8:30 a.m. ET Thursday when we next looked at Dow Jones Industrials futures, the numbers were pinned, horrifically, back in the red zone, around negative 422 and sinking. Speaking of zombies, this is a market that’s increasingly populated with zombie stocks dumped en masse by mysterious sellers, that once again today – just like they have since just after Labor Day – more greatly resemble The Walking Dead we all fear.

Mysterious sellers and zombie stocks: Where are they coming from?

Checking out CNBC’s scare headlines on this nasty turnabout after Wednesday’s one-day trading break in honor of former president George H.W. Bush’s state funeral in D.C., here’s the scuttlebutt we found.

“The stock market sell-off on Thursday began with a mysterious overnight plunge in equity futures that caused the CME Group to halt trading in several intervals.

“When futures opened for trading at 6:00 p.m. ET on Wednesday, the eMini S&P 500 futures fell as low as 1.8 percent in a sudden move on above average volume.

“The CME (formerly known as the Chicago Mercantile Exchange) Group said it had to intervene with multiple 10-second pauses to prevent a steeper decline in the equity futures.”

Aha! Maybe that’s why we got a futures reading in the green before we hit the sack Wednesday night. But obviously, that happy number must have lasted for roughly the 10 seconds it took for me to discover it and then close the page. Those mysterious sellers must have been lurking even then. The result today: zombie stocks all over the place.

The Huawei Caper further mucks up the market

More negative news from CNBC:

“A CME Group spokesperson offered the following statement to CNBC:

“‘Our equity index futures and options markets paused intermittently following this evening’s open due to volatility, which triggered more than 40 Velocity Logic events in the first six minutes of trading. All markets operated as designed throughout.’”

“Speculation for the swell in volume and plunge in futures included the news of the arrest of the CFO of the Chinese telecom company Huawei. The arrest was made by the Canadian authorities on the extradition request by the U.S., a move that some worried could put trade negotiations between Beijing and Washington at risk.

“After we saw this Huawei news hit, it seemingly (and inordinately) contributed to an almost impossible 65 handle drop in Spooz (S&P futures) on the overnight reopen, with 36,700 contracts trading in the first 10 minutes,” said a note from the Nomura Securities trading desk.”

Well, this won’t help either, will it?

Zombie stocks or zombie funds could be the culprits behind today’s latest market crash

Then again, maybe we’re simply dealing with a zombie hedge fund that just got hit with a massive margin call.

“But traders also speculated that the selling could be attributed to a large fund or funds liquidating a position.

“Futures briefly recovered but then eventually fell back to near those lows as traders said the damage was already done.

“‘After the gap lower inevitably hit more US Equities “stop loss” limit orders and further bludgeoned trader sentiment, the modest recovery thereafter lost further steam over the very early US hours,’ stated the Nomura note.

“The CME’s Velocity Logic is designed to detect market movements of a set numbers of ticks up or down in a predetermined amount of time and halt trading if necessary.”

High noon on Wall Street still looks awfully bad

As we write this piece around 10 a.m. ET, we find the Dow off around 500 points (a loss of nearly 2 percent). The broader based S&P 500 is doing just as badly, losing around 92 points for a slightly less than 2 percent loss. And the badly battered, tech-heavy NASDAQ is down a nasty 133 points, for an only slightly more heartening loss of 1.84 percent.

It’s a fools’ errand to predict when the White Knights, otherwise known as the Plunge Protection Team, might enter the market. Rumored to consist of a secret cadre of know-it-alls including the Federal Reserve, the Gnomes of Zurich, and other shadowy market saviors, the Team, under Fed Chairs Bernanke and Yellen would likely have intervened by now. But under the neophyte management of the current green-gilled Chair Jerome Powell, who knows where the team is hiding. He may have disbanded it.

Stocks continue to get hit across the boards, dealing another round of sickening losses to already shattered portfolios. If the smoke clears here, we’ll try to make some sense of this. But right now, we seem to be wrestling with a series of elusive financial monsters. They include the following:

Uncertainty as to exactly when the Fed will wise up to the damage they’ve caused, now likely irreversible in the short term, to markets, investors and the investment climate in general, not to mention banks and homebuilders.

Is it all about those Trump tariffs? No. Hell, no.

The uncertain effects of the Trump tariff regime, which the press relentlessly blames for everything negative in the market and around the world. Unfortunately, by making Trump look terrible 24/7, the hostile press has deified bearish outlooks, vastly weakening Trump’s position negotiating new trade deals that the US, a trade patsy for decades, desperately needs.

The once-again increasing Mueller-Fake Russian Collusion investigation, which, for the 50th time at least is “nearing its conclusion,” is nearing the umpteenth boil on the Fake News Networks, causing even more uncertainty and fear, which leads to investors pulling their money from now hyper-volatile markets.

As cited earlier, with China at least attempting to emphasize some kind of positive trade developments over the last 24 hours, the positive vibes from that ran into the brick wall suddenly thrown up courtesy of the arrest cited above.

Objectively speaking,  yes, the self-proclaimed “Tariff Man,” our beloved (seriously) president, is partially to blame for today’s market hit. As prez, you’ve gotta be a bit temperate in speech when the VIX is high and the market is rough. But no one is doing the president any favors with all the gratuitous Trump-bashing, either. It’s the relentless bashing, anti-GOP lying, and political exaggerating trumpeted by ignoramus lefties, far more than Trump’s tweets, that has begun to weigh heavily on this market.

This is all thanks largely to a party (the Democrats) and the rabidly left-wing, anti-American media that hates anyone in the country that’s not them. Re: The asinine remarks of JP Moran Chase (trading symbol: JPM) CEO Jamie Dimon, another wealthy Democrat that dumps eveything bad on Trump’s tariffs in his own intemperate remarks this morning.

Investing these days is like Halloween and its monsters never came to an end this year

It’s suddenly just a bad investing climate all around. Both Trump and the market are looking and feeling a bit vulnerable this week. This zombie market of zombie stocks can feel the hate. Both are reacting accordingly by kicking up the VIX volatility measure to greater heights.

And finally, as the CNBC article quoted above seems to indicate, our fears, voiced in our most recent market article that hedge fund wipeouts, computer algorithms, and high-speed supercomputer trading generated massive margin calls. Thus,  forced selling is now reality. The time-honored Yogi Berra algorithm is now in force. “It ain’t over ‘til it’s over.”

As we wrap this piece up, around 10:30 a.m. ET, the Dow is down by around negative 470 after at least two very feeble attempts to rally. Technical analysts note major averages are breaking major technical support areas, based on their 200-day moving averages. The bond yield-curve still wants to stay slightly inverted between 5-year and 10-year Treasury issues. And legions of those mysterious sellers keep coming out of the woodwork.

Keep your powder dry

All of which means the market’s bias pushes decisively toward the downside. This only concludes when everyone who needs to sell everything, well, sells everything. That would finally leave the battlefield open for the few intrepid bulls with enough courage at that point, to pick their way around the bodies on the battlefield in order to pick up a few shares, here and there, that might be showing signs of life.

However long it might last, we’re now in a severe correction that’s looking very much like a cyclical bear market. At least.

Stay tuned.

— Headline image. Screen capture from promo video for “Fear the Walking Dead.” (AMC)

Terry Ponick

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