Friday the 14th also saw the 8th straight continuous week that program trading has remained above 40%. Previously in the last 6 and 1/2 years or so program trading has NEVER remained above the 40% level for longer that 2 weeks at a time... and according to the NYSE the average % of program trading that's involved in arbitrage is only 8-10%
in other words it's unsustainable, and when that support is removed...there better be some replacement or it's bye bye price in one form or another.
Of course this all fits in with the possibility for another moderate high that your watching, and i agree...bitching is a waste of time. The FED has openly admitted that CB's can and will support capital Markets...it's their responsibility. Gotta deal with the reality of this situation...and anticipate and trade the trend changes as they happen as best you can...
Here's an excerpt from last nights commentary on the subject from the Astrikos site...used with permission
Although the S&P remains mired in a down trend, it's worth noting that it's performed quite a bit better than other world averages over the long haul. Pull up this chart in which I've overlaid the performance of Germany's DAX and the S&P500 over the past eight years. Notice that the two are highly correlated, and rarely do they diverge for long.
The DAX has just broken its October lows on a closing basis, and is now down approximately 70% since the top in 2000. This isn't some speculative index like the Nasdaq - it's the benchmark for Germany, equivalent to our S&P500 or Dow. Consider that if U.S. markets had fallen as hard as the DAX over the past three years, the Dow would currently be trading around 3500 and the S&P would be in the 450 area.
On a shorter-term basis, this chart shows the activity of other major world averages since last October's lows. Notice that all of these indices have either broken their October lows or are in the process of breaking down as we speak. The U.S. is the only one of the major averages that has not at least challenged its October lows. For those asking how the U.S. averages have managed to hold relatively firm this year despite the global meltdown, I can make an educated guess... heavy handed program trading.
The latest program trading report for the week ending February 14th reveals that the percentage of program volume executed for member firms accounts remained at extreme levels, coming in at 42.7% of total program volume. That makes the eighth straight week we've seen such a reading over 40%, indicating program trading firms are using program buys and sells for their own accounts at an unprecedented rate (see long-term chart). This surge in program activity really began in the last week of December, and it's remained consistently heavy ever since. Prior to this year, the longest this statistic remained above 40% was two weeks, so it's clear the market has been and continues to be dominated by program trading like never before. My guess is certain institutions are using programs to artificially prop up the market, with today's late session rally a prime example of such activity. This is the most likely reason why U.S. markets haven't followed the rest of the world into new lows yet. History tells us, however, that this unusually heavy program activity can't last forever, and at some point soon we'll see a major reduction in program trading. It's when this reduction occurs that I would expect the next major move in the stock market.
astrikos.com |
