Archive for June, 2012
I have suspected this for quite some time. I believe that there are HFT players that are buying order queue information from brokerage houses. I know this sounds pretty extreme, and maybe I’m just being paranoid, but think about how easy it would be to write a program to extract this information if you could obtain it. And think about what a huge edge it would be, to be able to see the incoming orders before they are actually sent.
I dabble into the illiquid issues sometimes. And I mean seriously illiquid issues. The issue I was going to trade today, a preferred stock, was Entertainment Properties Trust, 9%, Series E Cumulative Convertible Preferred shares (NYSE:EPR-E). Now that is a mouthful and it’s safe to say that the trading action on this issue is pretty muted. That would actually be an understatement, the issue had actually traded ZERO shares today at the time I brought up this quote:
I decided to buy the 28 offer. I queued up the order in my order montage, and clicked the price of 28 dollars (which automatically populates my order ticket with all the order information – including the 28 price). As soon as I clicked the price (which populated my order ticket), the offer traded out, as you can see here:
Now I know it is common-place that when you send your order using a SMART router, sometimes an HFT firm will see your order coming up the queue, and quickly front-run your order by taking the offer. But in this case, I had not even sent the order yet. Now this could be purely coincidental, and perhaps there just happen to be some market participant placing an order to buy the issue at the exact same second that I populated my order ticket. If I was trading a stock that was even remotely active, I wouldn’t question this coincidence at all. But considering that this issue had traded ZERO shares today, and the 28 offer had been there for over 2 hours with no takers, I find this coincidental trade to be highly suspicious.
Is it possible that an HFT firm saw my order before I hit the send button and beat me to the trade? It sounds crazy, but I think it’s possible. What’s next, HFT algorithms reading our minds? Maybe.
Can the 1300 level hold in the S&P? AAPL just above critical support, and Goldman Sachs puts a pair trade on in the banking sector. Full premarket analysis:
Broad-based sell-off this morning, as S&P tries to hold critical 1317 support area. PFE and BMY getting hit from the FDA, and we discuss last Friday’s Russell Rebalance. Full premarket analysis:
An expected outcome to the Greek election, Moody’s downgrade of 15 Global banks, continuation of Operation Twist, no QE3 yet, and an all-out declaration to short the market by the sages at Goldman-Sachs (GS). I certainly do not know what to make of all this fundamental news, but neither does the market.
After a sizzling start to a summer rally earlier in the week, GS remarks on Thursday rained on the parade. That along with the June S&P 500 Index futures making a double top (Tuesday-1357 and Wednesday-1355.50), as well as many of it’s top components doing the same, was too much for the market to overcome.
As a result, the index relinquished all of its gains and settled down almost 11 points at 1326.75. With the index making a double bottom (Thursday-1317.50 and Friday-1318.25) the stage is set Monday. Will the index breach that area and take another, and perhaps final shot at 1300, or will it hold and scratch its way back to 1350?
After breaking out of its summer doldrums on Monday, Apple (NASADAQ:AAPL) is right back in them. Although AAPL had over a 17 point range on Monday, the rest of the week was contained to less than a 15 point range. Many investors stacked their sell orders at 600, but the smart money decided 590 was going to be the top of this rally. AAPL did reach 590 on Tuesday, and barely missed on Wednesday (589.25) and Thursday (588.22). Interestingly, during Thursday’s selloff AAPL did not come close to Monday’s low (570.37) and managed to post over a four point gain on Friday. Perhaps AAPL investors still have faith in a summer rally.
Similarly to the overall market, Exxon-Mobil (NYSE:XOM) succumbed to profit taking. Just like the futures (and AAPL for that matter), XOM formed at double top (Wedneday-85.39 and Thursday-85.37) and then retreated. Although XOM closed weak on Friday on the low of the day at 82.11 (a large sell imbalance on the close didn’t help), four of its previous six lows have been between 82.05-82.35. Thus, if 82 can hold on Monday, XOM could be poised to rally back to 85. On the other hand, if 82 cannot hold expect a quick drop to 80 and beyond.
As 590 was to AAPL ,so was 200 to International Business Machines (NYSE:IBM). The psychological 200 resistance area stopped the IBM rally dead in its tracks. In fact, after Tuesday’s high at 199.99, sellers stepped down lower in the 199 handle on Wednesday (199.74) and Thursday (199.45). As the selling pressure increased on Thursday there were no buyers in sight until 193.19. Those same buyers were back at it on Friday as IBM made a double bottom at 193.22 This activity is occurring just above critical support created by the five lows made in the 192’s earlier in the month. Can IBM muster some strength here and climb back to 200 or give way and reach the 180 handle once again?
Microsoft (NASDAQ:MSFT) was one of the top performers in the Big 10, tacking on .68 to close at 30.70. Despite making a triple top (Tuesday-31.11, Wednesday-31.05 and Thursday-31.14) and then falling back a buck, MSFT rebounded on Friday to close in the upper portion of its weekly range. Not only did MSFT make a triple top this week, it made a triple bottom as well (Tuesday-30.05, Thursday-30.06 and Friday-30.03. Therefore a breakout or breakdown of the aforementioned levels will signal the next major move in MSFT.
Just when I thought General Electric (NYSE:GE) was finally going to break out above 20 and run, it slumped right back down with the market. After forming a double top (Tuesday-20.14 and Wednesday-20.15), GE retreated on Thursday, aided by going ex -dividend and a market rout. However, it managed to make a double bottom (Thursday-19.46 and Friday-19.51) which prompted a recovery rally to almost 20 on Friday. Focus on the 19.46-20.15 trading range until GE can make a decisive move one way or another.
If you want a textbook example of support in a stock, take a peek at the 99.50 level in Chevron Corporation (NYSE:CVX). Not one, or two, or three, but eight times in the last eleven trading sessions CVX has bottomed between 99.57-99.91 and low and behold Friday’s low was 99.58. Therefore, until that area is taken out with conviction, CVX remains in an uptrend despite its recent decline. As with so many others in the Big 10 this issue has a big fat juicy double top (Tuesday-104.65 and Wednesday-104.55) which halted its advance. Therefore, if CVX goes into rally mode there is nearly four points with no formidable resistance level.
AT&T’s (NYSE:T) torture of short sellers took a break this week. Finally, institutional sellers at 36 and the High Frequency Traders just below that level, put in a tradable top on Monday at 35.98. The remainder of the week was greeted with four lower highs and a test of major support at 35. With Thursday’s low (34.98) and Friday’s low (34.99) in place now, T may be poised to rally back up and test the waters at 36 once again. A close below 35 would initiate more profit taking and signal a move to the next major support level in the 34.50 vicinity.
A major area of concern with negative implications for the entire market has been the price action of Procter&Gamble (NYSE:PG). Will the global economic slowdown that has plagued PG and other multinationals like Phillip Morris (NYSE:PM) be a precursor of things to come? That I cannot answer. But if PG goes through the triple bottom formed at the end the week (Wednesday-59.74, Thursday-59.75 and Friday-59.76), get out of it’s way. Since that level stands as the only formidable support in PG until its August low of 57.56. To get any traction on the upside, PG needs to rally above 61 and sustain at least three closes above that level.
Johnson&Johnson (NYSE:JNJ) appears to still be digesting its parabolic move from just under 62 only nine trading sessions ago. For now, major institutional sellers aided by the High Frequency Traders selling in the high 66s, has halted JNJ’s advance in the last four trading sessions. Expect this tug of war between 66 and 67 to continue until a decisive move is made one way or another. In my opinion, an advance above 67 will be met with a host of new sellers, while a break below 66 would be greeted with not so aggressive buyers.
If you are tired of reading about double tops and triple tops, how about the quadruple top in Wells Fargo (NYSE:WFC). It appears some major players have decided to lighten their load in between 33.09 and 33.22 (Tuesday-Friday’s highs). But do not get too excited if WFC clears those levels, since the May 11th high of 33.60 will be another area of resistance. WFC which avoided Moody’s review this week has rebounded from its move under 30 and is within two points of its 52 week and multi-year high of 34.59. As long as WFC holds 32, it’s long-term uptrend is still in tact.
In closing, the set-ups provided this week from the charts are a technician’s dream. With so many concurring double and triple tops and bottoms in the index, as well as it’s top components, the market has to do something. It will either hold the lows from the end of the week and drift back to 1350. Or the GS call will come to fruition and the index will again test the major support at 1300. It was certainly a bold and unusual call from the most influential broker on the street, and it will be interesting to follow how GS does with that call in the upcoming weeks.
Sell the rumor, buy the news? That’s the story in MS today. CVX, IBM approach major support, and FB gets some love from Nomura. Full premarket analysis: