The Quantum Shift

  • The US markets and soon all trading markets are involved in a quantum shift toward High Frequency Trading.
  • US Stock markets have gone through probably the strongest three day rally  off a double bottom since 2008/2009. Not only did we have  one, but now two days have confirmed the first day’s massive move higher.
  • This rally is happening in very weak, below average volume because the vast majority of traders left in the market are High Frequency Trader. They dictate the flow or trend.
  • If one were able to predict what these HFT’s were going to do, you could make some serious $$$.

The Put/Call Ratio.

Investors411 has been using the The McClellan Oscillator as a primary diagnostic tool to measure overbought/oversold levels of the stock market.  The MO measures the NYSE. It does a good job. Readers of Investors411 can easily testify to this.

The problem is HFT’s look for leverage, because with leverage you can make more $$$. Therefore we need a tool with more leverage.

As most of you know Puts and Calls give you huge leverage. So sharing or taking the spotlight from the MO is going to be the Put/Call Ratio

This is the primary hunting grounds of the HFT’s and professional traders because it has leverage. Basic undersatnding  the Put/Call Ratio is simple. Above 1.00 is Bullish and below Bearish LINK Many analysts use moving averages for the P/CR. More on other ways to look at this later.

Bottom Line – The PCR closed at 1.14 and that’s bullish for stocks. One translation is that there are just more puts out there for HFT’s to mess with.

ThereforeThe MO is at +79.86 - overbought = bearish. But the P/CR is at 1.14 (above 1.00) and the HFT’s have more puts to play with than calls. Also consider the past couple of weeks the P/CR has been way above 1.00. That’s a lot of Puts out there that have to buy to cover their positions or lose $$$

HFT’s dominate, especially in low volume rallies. So for now they trump the MO.  But, don’t ignore the CAUTION below.

So, even though we are overbought, the HFT’s have some juice (because of all the put positions out there) to move the markets higher.

Bulls Rule

The Caution

Fundamentals in the long term rule markets. The May 20th call of a summer downgrade was based on that. European banks and countries could crumble in September.

So we have a new forecasting tool, a new long term outlook, and a new understanding of HFT’s.

  • Paul’s friends at HGSI turned positive last night (see comment section of blog)
  • Investors411 Upgraded its Long Term Outlook  yesterday



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