Thursday, January 14, 2010

Traders Wait on Intel (INTC), JPMorgan (JPM)

Today's much worse than expected government retail sales (a nonsense report in my eyes, when you should be listening to the retailers themselves) was brushed off by the market.... as giddy traders position for the "surprise" beats by Intel (INTC) tonight and JPMorgan (JPM) tomorrow morning.

As we mentioned yesterday, S&P 500 level 1150 was the pivot point [Next Key Point - S&P 1150] and would provide the near term resistance which yesterday and thus far today have proven true.   The market continues to act like a drone... a slave to technicals - as if guided gently by an invisible hand.

As an aside, a very "interesting" thing happened yesterday... as the market struggled in the morning and looked like it could potentially sell off, a massive SPY order came in for some $14 billion.  So who has $14 billion lying around?  10% of the entire day's volume occurred in that 1 trade.

Well lo and behold the CME says it was probably a mistake and they are investigating... but that sure didn't stop the market from galloping higher on said 'mistake'.   A cynic would say that mistake has set the ball on the tee, ready for Intel and JPM to hit the ball out of the park, and gap us up over 1150 tomorrow.  Thankfully, I am not a cynic.
  • Surging volume in futures tied to the Standard & Poor’s 500 Index yesterday may have been caused by erroneous orders, according to CME Group Inc., the Chicago- based exchange where the contracts trade.  “There were a series of transactions in which a market participant appears to have inadvertently traded approximately 200,000 contracts as both buyer and seller,” the e-mail said.
  • About 2.1 million of the contracts changed hands yesterday, compared with a daily average of 1.18 million during the past four weeks
  • “It’s a crazy thing to do on purpose,” said Darrell Duffie, professor of finance at Stanford University’s Graduate School of Business. “It’s possible someone just put in an extra zero or two, and then within a minute realized their mistake and sent in a trade in the opposite direction for the same amount. That’s the most innocent and most likely explanation.” (yes, surely we'll find an innocent explanation if we look in the right cubby hole)
  • Taking both sides of a futures trade is banned under CME rules to prevent “wash” transactions that avoid risk and price competition, according to a statement on its Web site. 
  • A $14 billion buyer of S&P contracts came into the market,” said Dave Lutz, a managing director in listed equities at Stifel Nicolaus & Co. in Baltimore. “It certainly looked like a down day prior to all this taking place. That trade certainly reversed that.”  (mmmmm... nicely done)
  • Assuming the orders were made in error, the trader “would know that they would not evade the attention of the exchange and regulators,” said Duffie. “It’s just too enormous a position to imagine that you’d go unnoticed under the radar.”  
Did anyone see Larry Summers between the hours of 11 AM and 12 PM yesterday? 

    Obviously it is not ok, if the same firm buys and sells to itself to create an order... but say you really wanted to get the market up, and you took both sides of the trade but under different 'entities'.  You could see how easily you could move this market up whenever it needed a little pep in your step.   And you could just recycle this same $15-20B dollars over and over again all through a much needed rally to rekindle animal spirits. (preferably in pre-market when possible of course)  Of course you'd need $15 billion at your disposal....and the ability to hide your tracks.

    [Jan 6, 2010: Charled Biderman of TrimTabs Claims US Government Supporting Stock Market]

    That's just a view from my grassy knoll...or perhaps from my alternative reality island within the Matrix.

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