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Weird World: Continuing to profit when stocks don’t move

Written By | Jul 18, 2016

WASHINGTON, July 18, 2016 – The Maven, like most other experienced investors, has been puzzled by the stock market’s buoyancy lately, which has frustratingly been accompanied by a distinct lack of buying opportunities.

What’s happening is that markets open nicely up, with stocks jumping at the opening bell. But after that point, there is very little motion. Our accounts have been showing profits each day. But since many desirable stocks open up and stay there, we can’t get bargain prices and are reluctant to buy these stocks as they hit new highs.

So what’s going on? Is Adam Smith’s “invisible hand” at work, 2016-style? Perhaps it is.

ETF Digest, which, alas, is going away at the end of this month, offered a plausible theory on what’s going on in its most recent free post. We’ll quote it at length, because it’s interesting and most likely true. Bolding and links from ETF Digest:

“…some believe there is market manipulation taking place, a theme making the rounds on the street this week. Notable [CNBC] commentator Art Cashin highlighted commentary from Keene Little at Options Investor that fleshed out this ‘conspiracy theory’ even more. The first point that Little makes is that the market has been seeing huge gains in overnight trading, immediately opening higher and then barely moving during the day.

“‘This is frustrating for traders on both sides since there’s been very little to trade during the day,’ Little suggested.

“‘It’s much easier (cheaper) to manipulate the market higher with overnight futures than it is during RTH (regular trading hours).’

“Additionally, Little noted that much of the timing and movement of this action appears to have something to do with central banks and Brexit. Here’s his breakdown, via Cashin (emphasis ours):

“‘Many are questioning how the stock market could possibly be rallying so strong on what appears to be very weak fundamentals. Since the spike down into the June 27th low (post-Brexit reaction) there’s been much speculation that the central banks panicked and injected a lot of liquidity into the markets to prevent a sell-off. After all, this has been their mission for quite some time, now readily admitted by them. They certainly succeeded at their mission (again) with the big spike back up this month.’

“Essentially, while there have been statements from central banks after the UK’s decision to leave the European Union saying something to the effect of ‘we are ready to support markets,’ Little believes central bank infusions are a significant part of what is driving the rally.”

In other words, Cashin (one of few CNBC commentators we respect) are using circumstantial evidence the way we’re forced to do here. Only the world government inner circles really know what’s going on and they rarely if ever tell. So we have to watch what’s going on and infer the truth even if we don’t always have empirical confirmation.

Although it’s frustrating in a way, this is essentially the way the Maven has often ended up training. Having collected degrees in the Humanities as opposed to economics, math, science or business, the Maven tends to watch behaviors and psychology as often as he looks at charts and business fundamentals when choosing investments.

One can, in fact, figure out what tricks the high rollers and sneaky computer algorithms are currently playing and then either game these greedy jerks back or move to investments where they’re unlikely, for various reasons, to make a move. As we’ve been hinting in recent columns, as soon as we can figure out a way to explain this “subjective” investing method, we’ll try to roll it out for you, at least in part.

Bottom line on the Cashin-Little info: Some foreign central banks (like the Swiss central bank) have already admitted that they—on behalf of their governments—are actually buying plenty of stocks themselves to keep markets propped. There’s zero reason to believe that this is not a concerted effort involving all or most other central banks as well, including the U.S. Fed. What this ultimately will mean is hard to say.

But for now, we’re being very cautious. And very irritated as the retail market in which we’re forced to trade seems to be giving the real bargain prices to the big international outfits that do their work at night when we can’t see them, leaving little for us to do—or to profit by on our own—during regular trading hours.

Sure, some of us have been making money. Yet the decisions to buy and sell seem to have been taken out of our hands, as if our profits and losses are being determined for us by others regardless of what we want or need.  Is it any wonder why average folks are getting fed up with everything?

Trading diary

Under the circumstances, we’re not doing much today, only attempting to add tiny bits to three ETF positions in Schwab ETFs representing Fundamental Emerging Markets (symbol: FNDA), REITs (SCHH) and Fundamental Small Caps (FNDA). As we’ve noted above, however, nothing is moving much after the opening trades, and we purposely underbid, so there’s usually a possibility that our trade won’t execute at all. But we refuse to pay the higher prices that the obvious overnight “invisible hand” action happens to be causing. It’s frustrating.

That said, on the brighter side, given the recent wobbliness of precious metals, we’d put a trailing stop on our fair-sized position in the Swiss silver bullion ETF SIVR, figuring it would be correcting soon. This morning, it did. However, after hitting our stop and executing the order, SIVR bounced right back up today.

Although the way we put on the stop through our brokerage is supposed to keep that number hidden from the predators who pick these orders off, our stop somehow got hit anyway, which makes us wonder if the HFT clowns have hacked the way our brokerage keeps these orders out of sight.

That said, we’re not crying too much. Our profit on this one was about 14 percent. These days, we’re happy to take a number like that.

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 Senior 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