WASHINGTON, January 28, 2016 – Wednesday’s rally and subsequent post-Fed minutes smackdown are already history. Thursday’s trading action thus far is much the same for completely different non-reasons. At the 9:30 a.m. opening bell, the market opened wildly up in full irrational exuberance mode as this morning’s hot story gripped traders and HFTs with a kind of manic euphoria. The trigger? Word that
the Soviet Union Russia and the Saudis had met or were going to meet soon in order to cut oil output by 5 percent to stabilize prices.
Bang! It was off to the races for about 45 minutes until word trickled in that the story was only a rumor. According to (allegedly) more reliable sources, no such meeting had taken place or even been scheduled. Wham! The early morning rally was DOA within seconds as stocks quickly retreated to January’s all-too-familiar red-ink mode.
Since this morning’s switcheroo completed its appointed rounds, however, West Texas Intermediate (WTI) has continued to trade insanely, bouncing about in a roughly $3 range. It currently sits at about $33.48 bbl., up around $1.16 cents as we near 1:30 p.m. EST. Benchmark Brent crude, slightly higher as is usually the case, is in a similar situation. The whole scenario is completely nuts because nothing has really changed on the production report, even though it’s intuitively obvious that someone’s going to cave on this oil pricing issue at some point. (And they want it to be us.)
Meanwhile, according to ZeroHedge, there was an early issue with Apple (symbol AAPL) options early this morning with prices briefly going out of whack on the call side. These contracts briefly soared into the stratosphere in a kind of reverse flash-crash. The NYSE, which now owns the Amex where these options are traded, quickly “investigated,” and the option prices came back down to earth.
What was funny, though, was that the AAPL options nonsense was taking place at roughly the same time as the Saudi-Rushki oil output cut nonsense was rippling across the wires. When both stories evaporated, stocks tanked. But as of 1:30 p.m., everything is hunky-dory again. For now. The Dow is up 42.73 at 15,987.19, the S&P 500 is +7 more or less, currently sitting at 1890.79, and the lately very-touchy NASDAQ is up 26.40, perched at 44.96.75.
For relative old-time investors like the Maven, this isn’t investing. It’s a game of craps, and the dice feel loaded. For non-gamblers, maybe this market is more like jumping on a trampoline. If you’re up, you’re coming down; and if you’re hitting the trampoline, you’re instantly on your way back up. To switch the metaphor a bit, it’s a video-gamer’s market, really, and all the charting and analysis tools that have served old timers in good stead for the better part of the past 100 years are worth… well, you know. It’s a two syllable term that begins with “jack.”
This is not the simply the opinion of an old has-been railing against the future, either. Nothing has really changed in today’s markets except the rise and current predominance of computerized fraud over logic and common sense analysis. Stocks used to trade—and indeed should trade—on facts, figures, earnings power and future profit projections based on fact, not fiction. This is the way one rationally determines value. This is logical in a market that prizes and rewards value and return, which is what the stock market is supposed to do.
But now, courtesy of the frequently illegal activities of high-frequency trading (HFT) firms and their supercomputers—which, according to current reports are doing some 70 percent of the actual trading these days—prices are being spoofed and gamed to harm the rest of us who are not so equipped. Worse, HFT activity is not predicated on current and future earnings and value, but on rumor, innuendo and, occasionally but rarely, on actual news.
Thus, stocks get jerked around every minute of every trading day by Computers Gone Wild. It has nothing to do with anything, save, perhaps, for HFTs—which firms, with impunity, are extracting every last bit of wealth from remaining individual investors and 401(k) participants alike. Nice work if you can get it.
Today’s general trading idea
In a nutshell, U.S. and world markets are currently busted and likely to remain so, due mainly to evil, greedy rich people on the trading side and to overpaid, under-zealous regulators on the Federal government side.
Individual investors like the Maven have two choices for dealing with this current reality: either get out of all current markets and watch our hard earned savings and investments wither slowly, relentlessly away until we’re all forced to retire to used single-wide trailers to await the Apocalypse; or get back in the game and make that single-wide Apocalypse future happen all the faster.
Actually, there’s a third way and the Maven is putting the finishing touches on it. He’s reviving and adapting his longstanding (but until now secret) “Vacuum Theory” of employment opportunities, which originally dates from the Recession of 1973-75 or thereabouts.
We’ll share this with you soon in these columns. It’ll be good. And because no one will pay attention to—particularly the HFTs—it will work.