The Carnivore, the Boston Shuffler, the Knife…

are some of the names of the algorithms on Wall Street that make up 70% of the operating system of stocks formerly known as known as your pension fund, and portfolio.

What Kevin Slavin is talking about is High Frequency Trading/Black Boxes that dominate The Street. In reality these mathematic algorithms are shaping far more than Wall Street, they’re shaping our world.

Above Photo links to Kevin Slavin’s Presentation.

Photo Credit James Duncan Davidson / TED

The Huffington Post is running a series of the best 18 TED [Ideas Worth Spreading] seminars this year. Slavin’s presentation is #18.

His video is a must, if you’re a trader/investor who wants to know if/why you’re portfolio may melt up or down this year. [Click on Photo for LINK to Video at Huffington Post]

The Ted series has been featured many times on Investors411, because TED presents outside the box, creative ideas that are shaping your life and terraforming this planet.

You can sort these lectures many different ways from the most inspirational to the most viewed – 7,783,815 people have listen to a 2006 Ted lecture by Ken Robinson “Schools Kill Creativity.”

So before today’s football game enjoy a TED presentation or two

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Stocks

Last Tuesday many very smart technical analysts of stocks were using words of caution after Monday’s rally. They said things like -

Don’t get too excited, wait for more days like Monday’s, and volume was too weak.

Not Investors411 - This site was unabashedly vocal in a more  BULLISH outlook. – Investor’s featured The Bullish Puppet Master editorial, an upgrade of stocks  and a New Your Stock List #7.

The rest, as they say is history -

Stocks exploded higher 24 hours later.

Tomorrow

• Why Investors was out front with the upgrade.
• Will the rally continue?
• A new exciting Yankee Bob editorial

Mea Culpa - I mentioned the fact I’d be out of town to the folks on the mail list, but forgot to post it on the blog.  We had a very active comment section this week. Check it out. (Scroll Down)

Barr

The FIX Is In

Or How the Bulls have Rigged the Stock Market

On the surface its simple and been covered in past Investors411. The Fed prints & dumps money into the economy. Yesterday’s dump was 8.309 billion More money  = more wealth in USA. This drives the dollar down relative to other currenies and US companies sell more goods abroad because they are cheaper.

But the devil is in the details – The FIX is being run by US shadow banks, our opaque central bank/The Fed & The Treasury. Here’s how

• You buy Treasury bonds from the US Treasury
• But our Fed buys bonds from from its 21 Primary Dealers

Aside – Primary Dealers is basically a synonym for giant opaque shadow banks. “Somethings Rotten in the State of Denmark” Let’s use Goldman Sachs as an example. The Fed buys these bonds from GS through its NY Fed office. William Dudley, runs the NY Fed and is also Vice Chair to Bernanke. Oh. by the way, Dudley was also chief economist for Goldman Sachs for over 20 years. Ya think, GS is getting a good deal or front running the bonds it sells to the Fed? Take a look at the recent rise in yield of the 10 year Treasury bond. (Link to chart on right side of blog)

Never forget there are puppet masters who pull the strings of the puppets we call democrat and republican politicians. But let’s get back to the bulls rigging the stock market.

• Remember we allow our shadow banks to be giant investment brokers
• The giant investment houses run Black Box/High Frequency Trading units.
• Follow the money. – Is the $$$ these primary dealers are making going to finance mortgages or is it going into the stock market?

Aside – Now if you are a greedy investor, like me, scroll down to “Reading The Tea Leaves” which maps the course of the money as it flows into stocks and how to make $$$ from it.

• So,  for investors. shadow banks, globalized US companies, most stocks the fix is in.
• Good economic news – No worries thing are getting better for the economy and stocks should go higher. But shadow banks could loose a major source of revenue.
• Bad Economic news - No worries Shadow banks, investors, globalized companies will all prosper.

You betcha, This short term fix is another bubble building. We are still the world’s economic Big Kahuna and we’re getting away with this market manipulation because we can and it works.  What were doing now should work for months. However once you turn on the steroids its hard to stop injecting. What’s really needed is fiscal reality – raising taxes/cutting social security/stop building an unsustainable military empire/cutting medicare.

Europe is taking a different road –  The Black Swan (great name) Nassim Taleb who predicted the 2008 meltdown and says that Europe is making more progress on debt than the US He’s right.  If your looking years into the future their austerity measures will work much better than what we are doing.

START Treaty (Haven’t forgot about it – Monday)

STOCKS

Investors411 tries to keep it basic.

If you don’t understand a term look in up at Investopedia.com dictionary

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

DOUBLE CHECK ALL DATA, I MAKE MORE THAN GRAMMAR MISTAKES

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Technicals, Fundamentals & Analysis

Investors411 record – 5 years of beating benchmark S&P 500

World Stocks -.

USA – Rally was confirmed yesterday and volume was relatively high,  and there’s a chance just a few people may be reentering stocks.

Job’s number for October = Rate Up to -9.8% Gain of +39,000 jobs Far Worse than expected.

Europe – Most major European markets did better than USA. The Black Swan (great name) Nassim Taleb predicted the 2008 meltdown and says that Europe is making more progress on debt than the US He’s right.

Emerging Markets – EEM (ETF for emerging markets) again outperformed US stocks. Up +1.96

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Chart Pattern for benchmark S&P 500 has formed a classic 8 month long cup and handle trading pattern. Stocks are accelerating to the breakout point now @ 0.50% higher (SPX at 1121 & breakout 1127) The acceleration into the breakout resistance point is OMG news for stock analysts.

When you break out to a new high and an 8 month major chart pattern is involved, it often is like adding  jet fuel to the breakout.

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Reading The Tea Leaves -

Bulls Rule – Today the employment numbers will probably show solid improvement. This will probably rally the dollar, and the dollar moving higher might hurt stocks. If it show an unexpected rise – the same thing will happen.

It’s the dollar/stock relationship that is key. One mantra of Investors411 has been a reminder that High Frequency Traders dominate/make 50% to 80% of all trades. They trade in both the larger currency markets and smaller stock markets.  Dollar up = Stocks down and visa versa. Here’s why the bulls are in control

• For 8 trading days the dollar went up (one was flat) Most of these days were significant moves higher.
• For those same 8 trading days stocks did NOT move down but sideways
• For two days the dollar have now fallen significantly and stocks have rallied significantly

Basically, the trend is stocks move sideways on bad dollar news and rally on good news.  There are some fundamentals behind this that have been mentioned in the past and will go over on weekend or Monday. But the important part is that bulls sure look like they are in charge.

Additional points – BDI seems to be showing early indications of a reversal in trend and that’s good news.  MO at +5 gives us lots of room to move higher. Rough interday gauge for MO is 100 Dow points are worth about 20 points. So Dow goes down 100 points MO would interday be at about -15. Reality the McClellan Oscillator has little to do with the Dow

Positions

• EEM - (Emerging Markets ETF)
• UWM – (2x small cap stocks ETF) As mentioned yesterday sold 1/2 of UWM at 39.11 for +9% gain
• UCO – (2X oil ETF) Bought at 11.37

Plan to  buy the dip today starting with UWM and on a huge dip TYH.

Look for Paul R’s always enlightening remarks on stocks and sectors in the comments section of the blog. See POSITION section of blog for lists of potential stocks & ETF’s including “YOUR Stock List.” -

I’d add to positions on YOUR Stock List too. Unfortunately many stocks are overbought (or close to it) right now. Paul R has a good grasp on individual stock positions.

Photos of Ron Paul & Barney Frank from Wikipedia

Kissing Cousins?

SE writing in the comments section has a revelation and points out  similarities between Libertarian Ron Paul & Barney Frank. He concludes “We need to change our foreign policies and redirect the savings to our domestic policies.” Source – A Paul/Frank joint interview on public radio

Ron Paul is perhaps even more aggressive about getting out of Afghanistan, Iraq and closing our costly European bases than Barney Frank. Paul’s position is often echoed in the comments section by Mama Jama who believes we should bring everyone home and protect the USA (also Israel).

Jsovjani has always wanted Europe to pay more in the defense of Europe & the world, but realizes that’s not going to happen. (see comments section) In the far right’s eyes Europe’s major threat is (“old communist”) Russia. But the Russians would rather get rich selling the Europeans their natural resources than fighting them.

The problem with most libertarians is they want not only to eliminate almost all military spending they also want to eliminate almost all social security, medicare and supervision of capitalism,  etc.  They’d let the shadow banks run wild.

Black Box Algorithms

I know this is boring, but its YOUR money.

One major change from black box traders is basically all stocks are moving together in concert. CNBC had an analyst/chartist on at noon EST who demonstrated that for decades US stocks have not moved in concert like they are now.  They all go up together and down together.

This is directly due to Black Boxes that buy and sell (they also use puts and calls) sector and Index ETF’s. They also concentrate on mostly liquid stocks. They make up 50% to 80% of trades in a given day – so with their High Frequency Trades everything moves in concert. (more later)

This is one major reason Investors411 is using ETF’s right now.

This does NOT negate our stock list or selecting best stocks out there – something Paul R and and a few others do quite well. In fact, picking the best stocks in oversold conditions may be even more relevant.

KISS & Stocks (Keep It Simple Stupid)

If you don’t understand a term look in up at Investopedia.com dictionary

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Investors411 record – 5 years of beating benchmark S&P 500 and almost all major US indexes

Technicals, Fundamentals & Analysis

Mantra for week Earnings Season begins this week. - How markets react to news has usually been the key. If a stock shrugs and goes nowhere on good earnings news you know there’s trouble ahead. Remember Black Box algorithms  dominate even more as volume declines.

The Intel earnings home run went from a +8% move in pre market trading and ended the day up +1.67% = Bearish

Black Box traders rallied into the close = Bullish

Markets went no where in weak volume. If they do this again its bearish. Now = Neutral

Largest market news event - China economy slowed as expected in the second quarter. It’s hard to trust any government’s economic proclamation – especially China. Numbers are usually massaged in favor of who is in power. Translation – China is growing, just not as fast as they say. This fact is generally accepted by most investors/traders so its not news.

Significant Indexes-

• McClellan Oscillator (MO) fell to +51.57 [+60 or above = Overbought = sell. -60 or below = Oversold = buy]. StockCharts has a better version of the McClellan chart ($NYMO) LINK. –  & Investopedia on –  How the MO works. The Black Boxes have not allowed the MO to rise above 80 since 3/09. Now close to overbought position = mildly bearish
• US Dollar –  The dollar fell -0.26% yesterday [Anything over +/- @0.50 is significant.] The dollar is important  to stocks – Dollar up = stocks down and visa versa. The Black Box traders, have used the inverse relationship of the dollar as a key part of their trading system. This inverse relationship is part of their algorithmic system. For stocks = Bullish
• BDI - The  Baltic Dry Index (Measures cost of shipping – Higher costs good = more being shipped = Bullish. Also good proxy of China.) BDI is in free fall from a high of @4200 to 1710 Monday. This is a huge -59% drop in almost 8 weeks.  Often a leading indicator for stocks. Here’s a 3 year chart of BDI for context. The BDI fell a decreased -4.53% yesterday. You have to go back to April of 2009 to find a lower BDI. Fundamentally this is very BEARISH

Best read of tea leaves is Black Boxes push markets slightly higher. Reasons – dollar probably continues to fall  & momentum higher at close yesterday.

Positions

The  Positions Section link to latest & former buys and sells  - These are positions I actually own

Updated over weekends Investors411 holds ONE position at this time

The overall stagey at this time especially for traders (as opposed to longer term investors) is to buy ETF’s that short the market. As the MO shows the market is more overbought add to those positions using ETF’s that short more and make bigger purchases.

• Yesterday Investors411 bought SH – The ETF that shorts the S&P 500. @% of portfolio position at 51.45
• US markets did not rally enough (get overbought enough) to use the EFT’s that double or triple short the indexes and even buying the SH might be premature
• If when indexes move higher I will add these ETF’s (see yesterday’s investors411)
• Will keep a 5% stop loss on each position.
• It depends a lot on how high the MO goes, but for the next couple days a rally of the benchmark S&P 500 above 1105 will probably be the next buy area.

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Long Term Outlook =CAUTIOUSLY BEARISH

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Sometimes what life is about is wanting More Cowbell

Thanks to HG for the clip. You can see a longer than 44 second version at the above link from SNL.

The Black Boxes

Investors411 has been beating the drums over the control Black Box Entities have over your money.

The Will Ferrell link was short, simple  and funny. This link is long, technical and boring.

But if you are at all invested in stocks or concerned about market regulations  you should skim/read this piece about the High Frequency Trading that black box entities use from Zero Hedge by Tyler Durden

Black box traders have rewritten the whole concept of investing. Money quotes -

• “can clearly demonstrate that HFT is having an increasingly large impact on the microstructure of equity trading dynamics.
• Values which were once only present on the orders of several hours or days are now commonplace in the timescale of  seconds or minutes.”

Bottom Line – Competing with the Black Boxes is impossible for the ordinary trader/investor. They win. However, because they are so big they leave tracks. The problem is before the whales (big investment entities) used to move slow and the black boxes move fast. When markets crash again there will be a HUGE investigation into this kind of trading. There should be now.

I’ve tried to see some patterns that the folks who control these black boxes use. Examples – the dollar & the MO seem to have a high correlation with the majority of their algorithms. But not yet sure that these forecasting tool will work as well as in the past. Even Black Box Traders can’t ignor long term fundamentals forever.

KISS & Stocks (Keep It Simple Stupid)

If you don’t understand a term look in up at Investopedia.com dictionary

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Investors411 record – 5 years of beating benchmark S&P 500 and almost all major US indexes

Technicals, Fundamentals & Analysis

Mantra for week (revised a little) Earnings Season begins this week. - How markets react to news has usually been the key. If a stock shrugs and goes nowhere on good earnings news you know there’s trouble ahead. Remember Black Box algorithms  dominate even more as volume declines.

Caution Black box traders that make up 50% (high volume days) to 80% (low volume days) of all trades seem to follow their own market technicals, and often eliminated volume as a major factor in price moves for indexes & sectors.

Volume rose on the AA earnings news, but was sill below average. This shows a few more traders/investors did buy. = Bullish

Intel computer like last quarter had an outstanding earnings report. Shares of the mother of all chip stocks were up +8% in pre market trading. = Bullish

Fundamentally it comes down to who do you believe – Intel says the worldwide recession is over especially in China and emerging markets and the BDI says we are falling into a double dip or extended recession especially in China and emerging markets. = ??????

Significant Indexes-

• McClellan Oscillator (MO) rose dramatically to +65.41[+60 or above = Overbought = sell. -60 or below = Oversold = buy]. StockCharts has a better version of the McClellan chart ($NYMO) LINK. –  & Investopedia on –  How the MO works. The Black Boxes have not allowed the MO to rise above 80 since 3/09 = Bearish
• US Dollar –  The dollar fell -0.67% yesterday [Anything over +/- @0.50 is significant.] The dollar is important  to stocks – Dollar up = stocks down and visa versa. The Black Box traders, have used the inverse relationship of the dollar as a key part of their trading system. This inverse relationship is part of their algorithmic system. For stocks = Bullish
• BDI - The  Baltic Dry Index (Measures cost of shipping – Higher costs good = more being shipped = Bullish. Also good proxy of China.) BDI is in free fall from a high of @4200 to 1790 Monday. This is a huge -57% drop in 7+ weeks.  Often a leading indicator for stocks. Here’s a 3 year chart of BDI for context. The BDI fell a decreased -2.72% yesterday. You have to go back to April of 2009 to find a lower BDI. Fundamentally this is very BEARISH

Positions

The  Positions Section = latest buys and sells  - These are positions I actually own - Updated over weekends – Investors411 holds NO position at this time. (see below)

I will be nibbling on an ETF(s) that Shorts the market today on a rally in stocks.

Hope to buy as S&P 500 rallies to resistance levels 1105, better 1112 or best @ 1125 (June high) S&P closed at 1095.  Probably use SDS. (-200% what the S&P 500 does) I will be adding ETF that short 300% when/if the market moves higher.  See yesterday’s Investors411 for options.

Logic – Intel & BDI are presenting two different fundamental pictures of world growth. You could write volumes on all the fundamental factors. The bottom line is that Black Boxes that have taken control over US markets. They have sold when the the MO got up to 80 four times this year. That’s a pretty strong resistance level.

Perhaps zillions of fresh investors will now come off the sidelines and take control. Some will, but my read the tea leaves is any rally will get sold into.

Long Term Outlook =CAUTIOUSLY BEARISH

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING