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Strategies & Market Trends : Classic TA Workplace -- Ignore unavailable to you. Want to Upgrade?

To: skinowski who wrote (68070)	3/7/2003 5:54:10 PM
From: John Madarasz	Respond to of 209892

Ski... fwiw this is some of the commentary from last night' edition at the Astrikos site, i'm using it with permission from the owners of the site: Suffice to say i think it's pretty important, but I think it dovetails in perfectly with recent analysis of the FED activity in the repo market too from the folks at Piraz.com astrikos.com Thursday, March 6th 2003 9:00pm ET Last week's program trading report was released by the NYSE after today's close, and the percentage of total program volume executed for member firms accounts came in at a high 42.3%. That makes the tenth consecutive week in which this statistic has come in above the 40% level, signaling an unprecedented amount of program activity has been taking place since late December (see chart). This isn't arbitrage activity either, it's large buy and sell programs on behalf of institutional accounts. You may recall that the peak in program activity occurred during the week ending January 10th, which just happened to coincide with the weekly top in the S&P500. Right off the bat, that's a clue that institutional traders were using program buys to send the market higher in early January. Of course, the move had no real underlying strength behind it, and when program activity began to subside the week ending January 17th, the stock market softened as well. Typically, after the kind of spike we saw on January 10th, you'd see program activity fall off sharply, back to more average levels in the 30-35% range. We saw the beginning of the typical dropoff in the two weeks following the January 10th peak, but starting January 24th, program activity has entered into a prolonged sideways pattern. It's no coincidence that the stock market has entered into a similarly choppy, sideways pattern since late January. This tends to indicate that the consistent program activity since late January has provided a temporary floor for the stock market. Remember, it was program trading that initially sent the market higher in late December/early January. It was the drop in program activity in mid-January that erased those gains from late December/early January. And it's the still high levels of program activity since January that have most likely prevented the U.S. stock market from following the rest of the world below its October lows. As long as program activity remains at such high levels, the market could manage to hold in its recent trading range for the time being. The problem with this, however, is that history tells us the current program activity levels are unsustainable. Look at this long-term chart of program trading activity going back to 1997 and notice that every rise over 40% has always been followed by a sharp decline in program volume. Accordingly, when program activity eventually does subside this time around, the 'floor' will be pulled out from under the market and the current trading range will most likely be broken. It's impossible to predict exactly when that will occur since we've never seen this type of sustained program activity in the past. There is a possibility that we'll see another big spike up in program volume within the next few weeks, and if so it'll most likely coincide with a sharp rally in stocks, similar to the rally we saw in late December/early January. Ultimately, however, history tells us that the moves that take place under unusually heavy program trading are temporary in nature. So if we do see such a rally in stocks on another spike in program volume, it should end up being another rally to sell into. Either way you look at it, one thing is clear. The underlying support for the market is artificial in nature, created by only a handful of trading firms that have been utilizing program trading in an unusually aggressive manner. From a longer-term perspective, this suggests a last-ditch effort is underway to prevent a washout on the downside. They've been somewhat successful so far, but it's been a struggle, which bodes poorly for the market's longer-term prospects. After all, if the market can barely manage to hold in a trading range when such heavy program buying is in the market, what happens when the programs finally subside?