In a world where 40-60% of volume each day are just computers rapid fire churning, and making sector allocations based on whatever the PhDs have programmed it seems we have reached a point where individual news has become somewhat irrelevent. 2 examples using the financial sector:
Early this week I saw a large shareholder of Assured Guaranty (AGO) was going to drop 16.4M shares onto the market in a secondary offering. Not the type of secondary where AGO receives any money, just a large scale sale. What this means is these are shares that were once in strong hands (almost like not being part of the float) but now are going into the open market. That should of led to a good sized drop in the stock.... instead the stock surged. You can see the volume explosion as those shares were pushed into new hands. How was all this inventory absorbed with not only no damage to the stock but a surge?? AGO was not a stock in an uptrend , it was looking horrible on the technicals yet somehow it jumped OVER resistance as a huge slew of shares were barfed up?
Yesterday as I was looking for new buys - and since financials were so hot I was scanning some of our old holdings; I noticed Discover Financial (DFS) was beginning to break out. I almost bought it, but decided to wait as earnings were coming out next week. Then last night, there was a bad pre-announcement - rather than make 9 cents as the analysts had estimated DFS said they would have a substantial loss.
- The credit-card company expects a first-quarter loss of 22 cents per share to 23 cents per share. Analysts polled by Thomson Reuters expected earnings of 9 cents per share.
I've been saying the past few years, the nature of these markets have been changed forever by these algorithms [Dec 3, 2009: Geeks Trump Alpha Males as High Frequency Trading Takes Over] and the new dominance of sector ETFs as trading vehicles, but even I am surprised and frankly boggled by some of the things I see now. We are in some sort of new Twilight Zone market.