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Shaking the Market for a Crash



September 29, 2011 – Comments (16) | RELATED TICKERS: EXAS , GMO , SUNEQ

Maybe I'm just tired and cranky right now, but is it apparent to anybody else that the high frequency traders and hedgies are deliberately trying to shake the markets enough to cause a devastating crash???  Is it more than interesting and a lot disconcerting that there are ads on TV now for newsletters and services on how to prepare for the end of America as we know it?

Maybe I am wrong, but it seems to me that the violent whipsawing in the market the past couple months has nothing to do with retail investors trading.  For the most part, either they are in or out at this point.  It has little to do with Investment Advisors either, who might be making a half dozen trades a week, and really most are making far fewer that that.   There are far fewer retail brokers out there than even a few years ago, so I don't think it's them either.  I review MMFAIS with some regularity and the institutions are adding or subtracting at what appears to be about normal rates.

That really only leaves the HFTers and hedge fund guys as the folks moving the market around.  Are they doing it to squeeze out small profit after small profit?  Is there something more to it?  Maybe each one has their own motive?  Are there hedgies just waiting until they can get enough speed on the swing to flip somebody into the dirt for a header, that somebody being everybody else?  My guess is somewhere in those ideas is the truth.

I don't know for sure, but something does not smell right.  Do we really have better regulation now or are there just different rules to break that make the rule breakers even harder to pin down?

What I know is that the markets are being moved- dare I say manipulated- with no good intentions for humanity as a whole.  Is greed really good if this is what it has become?  Does the SEC have a role here?  If they do have a role, will they do it before a crash actually occurs and boomers are forced to work another five years? 

Again, I am really not sure, I just know something is wrong that probably shouldn't be.

So, what to think and do. 

Well, like I have said, I don't really know exactly what to think, but I'm going with there is a lot of cheating and manipulation in the markets right now preying on fear- some rational, some irrational. 

I'm 30% in cash, have a small crash hedge via a put on the S&P I own and otherwise am holding onto a lot of losers right now.  I'm looking for great buy and hold opportunities.  But boy oh boy is that tough to do with the threat, real at least in my mind due to the above reasons or at least perceived reasons, of crash.  Knowing what a low price is right now has certainly gotten much tougher.  

Sigh, maybe it is time to pull out some Buffett wisdom.

"I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years." 

Yeah, that makes me feel better.  I bet my losers right now are winners in five years so long as I leave them in the drawer and wait.


16 Comments – Post Your Own

#1) On September 29, 2011 at 8:07 PM, SolarisKing (< 20) wrote:

I'm pretty sure you're as smart as i am, and a better trader, but i'll say a few things.

HFT is a springloaded jack-in-the-box, like you said. Each supercomputer ups the ante on the other until whammo. I think so. I also think the mentality is similar to 'kill or be killed'; as in, 'if the world accepts it i would be a fool to not get mine before i get had'.

Since you mention puts, how far back are your losers? Can you sell calls safely? to bring down your cost average?

That's one advantage to dividend investing (I'm thinking about some buys on GE). Writing covered calls to bring down your cost and receiving a dividend is a defense strategy i'm using.

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#2) On September 29, 2011 at 8:47 PM, memoandstitch (< 20) wrote:

I think it's the other way around.  The HFTs pumped the shares up to unreasonably high levels earlier this year that the current drop seems large.  SPY is still up 1.3% YoY.

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#3) On September 29, 2011 at 8:55 PM, kirkydu (90.85) wrote:

HFT really took off after April though if you look at the numbers.  The FED had a lot to do with the prior run up.  Now that the FED isn't adding much, we have lost some support, and probably a 20% correction was due.  The volatility though is not similar to other time periods.  It is much more violent and bigger.  Almost like people running back and forth on a ship deck to try to flip the damn thing.  I'm just hoping they can't do it.

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#4) On September 29, 2011 at 11:48 PM, lquadland10 (< 20) wrote:

Or the powers that be just need to gin up some money with the fee they charge with every transactions so they can turn around and get the German Greek European Union thingy taken care of. Just a thought.

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#5) On September 30, 2011 at 2:49 AM, rags2riches247 (66.52) wrote:

the market is schizophrenic. Buy what you want to own 5-10 years from now.

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#6) On September 30, 2011 at 9:20 AM, rofgile (99.39) wrote:


 Nowadays, I think the market will be more volatile than previously.  And, I think it will get worse.  

 Its easier to quickly buy and sell stocks than it used to be, its easier to do it all at once.  There are lots of people who sell when it looks like things are going down and buy when it looks like things are going up (momentum).

 If the S&P some day reaches 10000, perhaps in a century if it is still here, I would bet that some day there would be a crash to 5000 (which would be probably much more severe than our S&P crash from 1400 to 666).  

 While HFT is just not a good idea - I don't think it is solely responsible.  Computer trading and the internet is a bigger thing.  If we had to call brokers to buy or sell - the market would be a lot less volatile I am sure.


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#7) On September 30, 2011 at 11:18 AM, Teacherman1 (< 20) wrote:

This kind of reminds me of mid to late 2009, when the market was "whip sawing" on a regular basis.

At that time, there were people who were trying to take advantage of the "crash" and buy at what appeard to be ridiculously low prices, but got "spooked" at the slightest negative news, or dip in the market.

This time proved to be a great time to pick up some real bargins for longer term investments, and even for intermediate trading.

I think the difference right now, is that there is (as you have indicated), very little "investing" going on and the "market" is just all about "very short term trading" based on news and movements.

I still see this as an opportunity to pick up some real bargins for longer term investing, but you have to be careful and sort of "tip toe" into a position.

If you have done your research and find companies, "not stocks", that you feel comfortable with for the long term ( either dividend payers or growth opportunities), than instead of trying to find the very bottom, set a start price that is lower than it has been for awhile, and wait for it to come to you.  

You can then add little by little as the "market" provides the opportunities.

Just be sure it is money you are willing to leave in for awhile, so you don't get forced to sell at an inopportune time.

JMO and worth exactly what I am charging for it.

Good post and good discussion going.

Hope others add to it.

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#8) On September 30, 2011 at 1:32 PM, EnigmaDude (58.51) wrote:

I will chime in with a similar comment to others here.  Short-term this is a traders market and the volatility is likely to continue.  Long-term there are some good entry points on specific investments.  For example, if GE drops below $15 I will probably look to add to my position.

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#9) On September 30, 2011 at 2:26 PM, leohaas (30.06) wrote:

If you are so sure volatility is going up, buy the VIX (for instance, the VXX ETF)!

Clearly, this is bigger than you, me, and all the folks on CAPS. We cannot change it. But we can look at ways to profit from it...

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#10) On September 30, 2011 at 2:27 PM, kirkydu (90.85) wrote:

Among my losers right now are recent purchases of URA, TAN, WFR, AMAT, TOT and VE.  I plan to hold those for years.  Did I get in at the exact bottom?  Of course not, but I got in way below their recent highs and pretty close to their lows, so I'm ok with that.  Short term it hurts, but I guess it's sort of like working out.  Pain today, gain tomorrow.

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#11) On September 30, 2011 at 2:44 PM, chk999 (99.97) wrote:

ECRI said we are heading for a recession, so the big driver in the market may really be the economy. All the trading makes it more volatile, but you may be able to use that to your advantage with limit orders.

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#12) On September 30, 2011 at 2:53 PM, kirkydu (90.85) wrote:

thx CHK.  My version of a limit order is generally selling an out of the money cash covered put.  There are a few things I have limits on because I really, really want them.  But only a few.

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#13) On September 30, 2011 at 3:27 PM, NerfBall (< 20) wrote:

Lots of commodity stocks across virtually all sectors hitting their 52 week lows today. RIG, FCX, DD, MOS, CLF, AA, WLT, MRO, DOW, ANR, POT, APA, and the list goes on, and on, and on.

It would appear to be a general flight from commodities above all else, and I am assuming that would be the result of fears of a double-dip recession. 

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#14) On September 30, 2011 at 3:54 PM, truthisntstupid (79.76) wrote:

rofgile, teacherman, and enigmadude called it.  Jeez this is funny.  A bunch of traders scaring each other - and they're the ones behind what's going on! 

I look at it this way:  Just because great bargains might become even better bargains if you wait, that doesn't mean they weren't great bargains in the first place.  

Of course, you can wait - like so many of these fools did!

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#15) On September 30, 2011 at 4:14 PM, TheDumbMoney (77.88) wrote:

People give too much credit to hedge funds.  On my Twitter feed, where I monitor a lot of traders and investors and financial sites, I'm seeing a lot of rumors of hedge funds getting blown up or being forced to liquidate.  For example, Paulson's Advantage Fund is down something like 30% ytd.  Are YOU down 30% ytd?  I most certainly am not, not even close.  If a guy like that with $20 billion or so is forced to do sales, that hurts the market.  The pure technical people are loving this volatility.  I'm guessing a guy like Simons is going to come out smelling like roses in his technical funds. 

But these folks all follow the market, they don't make it, except as to indivudal stocks.  There is a compelling case to be made that there was a deliberate attack (by somebody, or some-bodies) on BofA in August, and that Morgan Stanley is now being deliberately attacked using a similar strategy.  But an antelope already needs to be sick and separated from the herd before it becomes ripe for such an attack by the lions.

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#16) On September 30, 2011 at 4:21 PM, EnigmaDude (58.51) wrote:

Too Soon To Call A Hedge Fund Meltdown


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