QOTD: Bill King on Normal Markets
By Barry Ritholtz - October 14th, 2011, 2:30PM
I am no conspiracy theorist, and my assumption is this has been an oversold rally. However, I love that Bill King (of M. Ramsey King Securities) asks the questions that others gloss over:
SPZ s rallied 13.75% from the pre-NYSE open low on October 4 to October 12 high. Normal markets do not rally almost 14% in 6 sessions. Normal buyers do not behave this way. Volume was lacking on the rally; there was little real buying. The compelling question is: Who forced SPZs higher and why?
14% in 6 sessions? That some serious shite!
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October 14th, 2011 at 2:41 pm
The market hasn’t been “normal” since 1998.
Greenspan, Bernanke, Rubin, Trichet, Paulsen, Geithner, Dodd, Frank, etc. have worked hard to de-regulate, obfuscate, and manipulate the system so that it would become prone to fraud and high-frequency booms and crashes.
The astonishing thing is that they are all scratching their heads wondering why people are losing confidence in them and the system. They can’t even dream of connecting the dots between a 14% rise in six low-volume sessions and “Occupy Wall Street” outside their windows.
October 14th, 2011 at 2:54 pm
Ok on the normal comment. Maybe it isn’t. But shouldn’t we also complain about the 25% drop in 8 sessions in the DAX? Who had the agenda there to force that kind of selling?
October 14th, 2011 at 2:59 pm
and the 5-6 pct down days, what does normal mean here, volatility clusters…
October 14th, 2011 at 3:00 pm
I think China just pulled a 20% move in the same time frame.
October 14th, 2011 at 3:09 pm
HFT algos, pushing up ETF algos, which rebalance, pushing up prices. Not much human sellers left in the markets. Mostly algos running around out there.
Same effect for down days, that lead into down spirals.
October 14th, 2011 at 3:11 pm
Look at the Oct. SPX puts. They´re in the millions compared to the usual monthly average of maybe 10-20 thousand. A major market crash Tuesday the 18th seems highly probable at this point.
October 14th, 2011 at 3:11 pm
BR, I have a feeling that you were not in the market in August 1982. The sentiment
was similar to today’s. Then on August 13, 1082 there was an explosion of buying.
And the Dow rose 15 fold from there.
Today the sentiment is awful.
I have been writing you for weeks and you never print my e-mails.(hey, it’s your site.)
All the good ideas do not come from Wall Street or fancy seminars. Some of us
outside the city and hedge fund community do just fine because we have good ol’
common sense.
October 14th, 2011 at 3:24 pm
Equities have been behaving super-double-plus-spooky since the second week of August. Just look at SP500 on a one-year scale and it’s striking. It’s just buzzing about 1150 and spitting random signals. I could see the HFT leeches / ETF whinnies producing something like that. I’m ready to bet that correlation within SP500 is extremely high right now.
I call that a Tourette market.
October 14th, 2011 at 3:26 pm
Just more evidence that the market is rigged and HFT is calling the shots. Let’s see if the algos can pierce through and hold the 300-day SMA in the INDU and SPX. Looks very possible now, but this could very well be a head-fake at the top of this trading range.
October 14th, 2011 at 3:28 pm
It makes me nervous. It is probably a good time to stock up on way out of the money straddles or something
October 14th, 2011 at 3:40 pm
along “Mr. Wonderful”‘s point, there have been many that (are/were) Short..by the ‘Bucket-full’..
October 14th, 2011 at 3:43 pm
Are commenters really blaming HFT for extreme markets movements on low volume? The HFT rigging markets meme has to die.
October 14th, 2011 at 3:44 pm
I suspect the many people feel the world is about to end..just listen to the posters here. Maybe the markets are volatile because the current global order is thought of as precarious..the 30s where loaded w/ crazy runs and were the 70s because they were crazy times.
October 14th, 2011 at 3:45 pm
If Euro crash contagion v. contagion forstalled (temporarily) is not worth 12% …what is?
October 14th, 2011 at 3:48 pm
Or Chanos/Hugh Hendry China calls..worth at least that amt of vol. as well
October 14th, 2011 at 3:51 pm
Not touching shorts or leverage… been there, done that in 1999-2000. I’ll leave that to the so-called ‘experts’. By the way, how’s that working out for hedge funds this year?
October 14th, 2011 at 3:55 pm
robert d,
I doubt you were in the market in 1982 if you think today is similar.
In 1982 you had:
P/E ratio = 8, 10 year trailing =7
S&P Book Value = 1
Fed Funds rate = 18%
10 Year bond Yield = 15
S&P Dividend Yield = 6%
Deficit to GDP ratio 3%
Tax rate 69% and falling
Households shrinking debt rather than adding
Common sense would say 1982 was nothing even remotely close to now.
October 14th, 2011 at 4:01 pm
@tsk tsk
No one is saying that HFT are rigging the markets. At least, I’m not. The problem with HFT and algo trading in general is that they introduce a lot of noise. Normally HFTs are operating on extremely short periods and, in theory, they have no net effect day-to-day. Their noise is filtered out, dampened by the overall market.
But I’m wondering if we haven’t reached the point where algos are simply talking to each other. It could look like what we’re seeing : algos generating high frequency noise with essentially no damping, feeding back in each other and the whole system starts to resonate at much lower frequency though non-linear coupling. Here, I would guess that the coupling term is humans tweaking the models on a scale of a few days.
If you ever played with self-resonating VCFs on a old style modular synthesizer, you’ll grok right away what I’m talking about.
October 14th, 2011 at 4:15 pm
The world isn´t ending by a long shot.
There is no planet x and no elusive meteorites will threaten us in the foreseeable future. No flesh eating alines hungry for gold to save their atmosphere will appear. All these fairy tales originate with forces that have an interest in people chasing rising prices for overabundant stuff. These forces run a hoard and sell business. Look it up. Warehousing? It isn´t just about overabundant physical stuff but also more or less less worthless shares of major stock watering scams. There is a reason that these scams are still down 60-80% from their 2000 highs. IMO about a third of the Dow Jones Industrial Average should have a one for ten reverse split to write off worthless stock.
October 14th, 2011 at 4:21 pm
I agree that the stock market isn’t acting in a “normal” fashion; the volatility, both up and down, as well as intraday and interday, has been large.
I have created a chart that illustrates this volatility and comments on it; it can be found at a post at my blog here:
http://economicgreenfield.blogspot.com/2011/10/chart-of-recent-s-price-volatility_13.html
October 14th, 2011 at 4:41 pm
Regardless of who or what was doing the buying, or on what volume, the negativity was so thick on every blog, twitter feed, and media outlet that there and everyone thought we were repeating 2008 that the market rallied.
We were seriously oversold and now everyone is surprised by the rally or blaming HFT fraud?
So many internal measures were pointing to a rally that it is really not that surprising. What is surprising is the speed of the rally.
In the end we have not broken out of this to month bear flag so until that happens we could just be consolidating these August losses.
October 14th, 2011 at 5:03 pm
BR wondered:
I am no conspiracy theorist, and my assumption is this has been an oversold rally.
reply:
———-
Yup, you got it. A bunch of grizzled and young Turk traders sat around their individual walls of LCD screens and spent the past week or so trying to outsmart each other, resulting in a group exasperation that is known as an oversold rally. Just like the advanced investment texts say, circa 1980. Golly, the big money sure works in mysterious ways. Any other explanation is just paranoia or stupid ideas from people who don’t understand anything except junk investing and simpletonism. Really. You nailed it. BullsEye!!!
October 14th, 2011 at 5:18 pm
Ted Kavadas:
Visited your site and agree with your conclusion (caution). What’s causing it? Don’t know, but I also don’t think the instability is a good sign, and that the system has changed, fundamentally, in a way that only those running the scam can fully understand (I suspect we’ll someday learn that we’ve ben robbed — again).
I also agree with rd’s observation that the link between such market behavior and OWS is lost on TPTB (I’d also include Saint Ronnie and his push for deregulation, generally and as a long-term goal, in the list of those responsible).
October 14th, 2011 at 5:18 pm
My eyes are on the .618 re-trace of the move from the 2011 highs to the recent 1074 SPX lows. That’s at about 1257 SPX.
October 14th, 2011 at 5:47 pm
According to ZH a country fund (China) has sold a large amount of treasuries, if they are using the proceeds to buy stocks,this could explains the rise in 10 year rates and the SPX.
October 14th, 2011 at 5:59 pm
Noone really knows, and it really doesn’t matter.
The trader’s job is to be on the right side of the moves, irregardless of why.
October 14th, 2011 at 6:02 pm
It was me … as I repeatedly posted here, pointing out that when VIX is over 40, ‘you can’t lose’ buying.
Now VIX is barely above 28, and the market is wildly overbought.
Guess what I’m doing now … ;-)
October 14th, 2011 at 6:09 pm
Looks like a typical bear market rally to me. The current secular bear market is simply dealing with the fact that it´s still down about 20% from the 2000 high. You will always see extremely strong rallies in bear markets.
October 14th, 2011 at 8:27 pm
The stock market reflects America’s strength and vitality in the world financial community, of course the market is rigged! So what…
October 14th, 2011 at 8:48 pm
The market is the same as it has ever been – it will rise until the very last bear caves in and buys. The trick is not to be the last.
October 14th, 2011 at 9:12 pm
boveri, the value of the stock market is 80% of what it was a decade ago and in the meantime it has crashed by 50% twice. Seems like a pretty sure short for the next years.
October 14th, 2011 at 9:41 pm
“I am no conspiracy theorist”
Please keep in mind that you are not paranoid if they really are out to get you.
In this case, TPTB have publicly announced frequently that they are focused on manipulating asset values, front-running clients, and engaging in fraud as “normal business practices.” They usually use other terms or provide lip service to focusing on ethical practices, but the public discolosures of what has been going on with only wrist slapping regulatory actions and no prosecutions means the public now knows that they are entirely at the mercy of the sharks with nothing but their wits to protect them.
October 14th, 2011 at 11:39 pm
“Normal markets do not rally almost 14% in 6 sessions. Normal buyers do not behave this way. ”
The professional traders never question the underlying concepts that drive there business decisions daily except when something abnormal suddenly appears then the question becomes why the abnormality?
But in reality the question they should be asking is how the market could be “Normal” why does those MA, and waves, counter rallies, bull and bear rallies always appear to work within expectations.
Maybe the tip off that the market is rigged is based on its normalcy.
October 15th, 2011 at 8:41 am
Something has been nagging at me for a few days. I wonder if a lot of this ‘oversold rally’ is really just a counter rally to Occupy Wall Street. Basically, I wonder if a few HFT coders and computer operators ran up the score just to rub shit in the faces of the demonstrators. Knowing people and their motivations as I do, I strongly suspect a few smart assed HFT traders decided to set the bulls loose on the crowds, knowing only few suckers who don’t close out at end of day would be left holding the bag when reality returned.
October 15th, 2011 at 10:09 am
The VIX is 23% below it’s 20 day simple moving average.
Move along, nothing to see here.
October 15th, 2011 at 12:51 pm
I’ve been arguing this since the miraculous 4% gain in 50 minutes rally that started the extraordinary move. This move:
1. happened in the last 50 minutes of trading.
2. coincidentally, I’m sure, saved the S&P from closing in official bear market territory.
3. was supposedly based on a rumor that was debunked shortly after the market closed (obviously, none of the gains were given back the next day).
As someone else wrote, it’s isn’t paranoid if the conspiracy actually exists.
For instance, look at Friday’s close. Yet another massive ramp, buying as if their lives depended on it after a 15% gain in two weeks and at the highest price of the day.
October 15th, 2011 at 2:40 pm
Im with robert d. market is a lot like 1982… maybe more like 84.
Equities completely unloved, PEs very low versus rates. Financing rates have come down a lot and continue to come down which powers leverage, PE, M&A, and part of EPS growth. As soon as employment kicks, that will further kick GDP, and earnings. Econ indicators continue to say “clear recovery”.
Buy everything on this dip. Buy AAPL.
October 15th, 2011 at 6:15 pm
@cognos What dip??
October 15th, 2011 at 11:17 pm
Less fear at this bottom than the last one. Not normal. Not good for the bulls.