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Saturday, December 5, 2009

Market Thought... H.F.T.

Anyone looking into yesterday's market action as any measure of anything is looking at the wrong day. IMO, yesterday's roller coaster was due to High Frequency Trading (HFT) programs.

The market rally is for real, it is driven by real earnings and that is why the market has been so resilient. (not animal spirits... look to gold for where that term applies)

Here is a play-by-play of yesterday's action:

1. Jobs report was great. Sending the futures higher, rightfully so. Better jobs number means less defaults, means the banks in particular should go up.

2. AAPL started to crack. Or rather continue its weird trading from Thursday afternoon. Apple's fundamentals do not merit such crazy action. period. Uncertainty causes the type of trading AAPL is seeing. We know everything within the company is fine, except for one thing: Steve Jobs' health.

3. Once AAPL started to crack, so went the market. Why the hell does ONE stock make the entire market to go down. Because the way Program Trading works. Most programs look to many different factors, and weigh these factors, to trigger automated 'sell' responses. AAPL happens to be a market leader, and IMO, the type of break down it saw triggered massive program selling.

4. Once the human aspect got involved to see what was going on, they overruled the computer. AAPL's special situation takes it out of realm of 'market leader', and should not be looked to as a reference. And so normal market action took place.

At the moment, the market is consolidating. But lets not confuse the situation. Specific situations for specific companies are not always indicative of the entire market. Sometimes they are, other times they are not. Its correctly identifying when they matter. (obviously this is not easy to do)

Goldman Sachs is also mentioned as a 'market leader'. However, the financials (nor GS) have not lead this market since August. The financials peaked in Oct, and the market kept moving. That means they have quietly lost that status from a sector rotation, and the market simply did not care. As it should not care. They have their own special situation due to rule changes entering in Jan. But with the new back-drop of a better employment picture, they should become leaders again.

(The daily chart in GS is ugly, but the weekly suggests its current move is a consolidation and a buying opportunity. Especially given the employment picture, and the 2 consecutive months of very high productivity. This is a leading indicator to job hiring that will take place very soon.)

The more and more I think about how much money of the stimulus package was not spent, how the normal economic effect of hiring is taking place, with the new jobs from Alternative Energies and when the rest of the stimulus money will be spent; fundamentally it makes me very very bullish on America and the American stocks.

now, where is my broom? ;)

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