Analyzing Strange Volume on the NYSE 39 comments
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"Oh yes, we have a tremendously positive stock market here. The tenor and tone is good, the volume support is ok, all looks excellent for continued rallying on an improving outlook for the global economy."
You mean like this?
That's a clever little search in which I asked for the highest-volume stocks with prices over ten cents (to exclude the little penny pumper stocks on the OTC market.)
Well gee, let's add this up!
That would be about 2.126 billion shares in total for these four stocks, two of which (Fannie and Freddie) are so far underwater in their equity value (to the government no less!) that there is no chance they're worth anything, yet they remain listed, and the other two are zombie banks with Citibank existing only because of $300 billion in asset guarantees by The Fed and Treasury (which, incidentally, is under investigation, and that assumes that the $300 billion is all there is. There is persistent chatter that the real amount of "back door support" that Citibank (C) has is closer to a cool trillion dollars, although I've never been able to get anyone to speak on the record in that regard.)
But I digress.
Here is the NYSE Volume for Tuesday - for all shares, right off NYSE Euronext's page:
So let me see if I get this right. 2.126 billion shares traded in four stocks, two of which that accounted for some 900 million of those shares are in companies that by any measure of accounting have absolutely zero common equity value whatsoever (and never will under any rational view of the future), yet NYSE Euronext continues to list them.
These four stocks represented thirty seven percent of all shares traded Tuesday.
Tuesday 3,162 different stocks traded on the NYSE. These four represent 0.13% of the total, yet they comprised 37% of the volume. That's an over-representation of nearly 300 times the average.
Now folks, let's be straight here. Do you believe for one second that this is "great liquidity" added by the "high-frequency trading" computers that are almost certainly behind the vast majority of this volume?
This isn't the first day with this sort of abnormal trading and volume pattern either. In fact it has been going on for the last week, with AIG making a frequent appearance on the list as well.
If there was ever an argument to be made for the NYSE having turned into a gigantic "hot potato" parlor game, this is it - in your face in an impossible-to-explain-away fashion.
NYSE Euronext, of course, derives a fee from each share traded, so they have to love this sort of thing. The ordinary investor who has a brain sees it as an amusing sideshow, but the unfortunate fool who gets sucked into the maelstrom is going to get destroyed when the computers move on to some other issue and the price collapses as there is no authentic bid out there for any of this crap.
Beware. This is the sort of cheap parlor game that our capital markets have turned into as a direct and proximate result of our so-called "regulators" turning a willful blind eye while supposed "improvements" in liquidity and "customer access" are put in place by those who have one singular purpose in mind - find a way to steal a fraction of a penny at a time by playing "hot potato" with a handful of issues (sometimes starting a nice juicy rumor to go with it, aka the one last week about BAC allegedly being taken out by Goldman just to prime the pump a bit!) hoping that you will be the bagholder upon whom they can unload.
The wise trader and investor who does not possess a colocated server sitting three feet from the backbone network that runs up and down the NYSE would be well-advised to stay away from this modern version of Three-Card Monte.
Finally, let me remind everyone that the tape does have both red and green arrows in the printing mechanism, and that which can be run up by these games can also be run down with equally-frightful speed. Speaking of which, doesn't anyone remember last fall and this spring during the crashes with all those nasty rumors about various firms that turned out to be not true?
Hmmm....
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Mr Denninger has the moral integrity to keep this issue in the forefront. I applaude the effort and the high quality articles.
It trades.
Big difference.
Google "Yankee Trader."
Can someone comment on where they think the inflows will come from. Meaning that we've milked the pension fund contribution cow and the pool of average Americans able/willing to contribute to their retirement is shrinking.
So where? SWF? I think the world has learned that we're no city on a hill so why not throw their money at other world exchanges.
Large portions of US markets appear to be suspiciously manipulated by major traders most of whom have been bailed out by taxpayers through the front or the back door.
Flash Trading, Giving different information to different investors at the same time, high volume pump and dump are things that scratch the surface. Much more lies underneath.
As an example it was reported that a huge major trader that was bailed out made huge money virtually every day for a quarter in trading. That isnt smarts, that is access, schemes, inside information, tricks like flash trading etc.
Just my opinion!
It's been happening for over a year now. I'm sure the Fed, Treasury, Goldman and possibly PIMCO would have a hand in it. It would take a huge chunk of cash to pull it off. But then again, the Fed won't explain where $2 Trillion Dollars has gone either.
Neely has been pretty bad with that press release that call for the top being in at 956 and his months between trades. He also called for 500 or lower by the S&P by the end of 2008....now maybe 2009.
His tone has been negative and "any moment" for 200 S&P points from the updates I've seen.
On Aug 26 08:52 AM Schweizer wrote:
> Neely has deep new lows by year end.
Safety Is A Function Of Awareness.
Imagine the impact of "37% of trading volume is in just 4 stocks" as the financial headline instead of "The Economy is coming out of recession." This ought to give small traders the wileys.
Nice Job, keep up the great work.
Quantitative investors love these kinds of stocks,because there's an enormously deep pool of related instruments to trade. One need not assume that there's some dark or nefarious scheme going on-- hi speed quant strategies are employed in other markets too.
A true investor should look at all four of the entities listed as speculative -- how much they're worth is more a function of government policy choices than underlying business. But a quantitative trader has very different objectives and is trading not just the common, but many other instruments related to the issuer.
I await an example.
On Aug 27 05:12 PM James Davis wrote:
> You say its an arb? Then what instrument are they shorting as they
> bid up AIG?
>
> I await an example.
The AIG story has so many complex overhangs of potential offsets that you can't catalog them all. But lets start with the obvious: there's a massive US Government position. Then there's a very large Hank Greenburg/Starr International position.
"They" may not be shorting AIG; they may be long another security or contract which is affected by the price of AIG.
Remember, the common is a tiny stub here-- AIG common is a rounding error next to the value of outstanding swaps and other instruments issued by AIG. AIG wrote something like $600 Billion in credit default swaps, for example.
One could imagine all kinds of exotic trades where you'd bid up the common. You could buy a CDS on a lousy CDO written by AIG (would have sold for next to zero in March or June), for example, and then have a very strong incentive to bid up the common (the more likely AIG is to survive, the higher the price on a CDO written by them).
Not saying that that precise trade is taking place-- there's no way to know who's got what trades on. But this kind of thing is made for paired trades.
What you can say with certainty is that the common in all these entities is a tiny fraction of the total capital structure, so to say something meaningful about trading you have to look at the whole.
Anyone paying up for the shares would have to have an *offsetting* position in something else , not another LONG, for it to be an arb.
Someone holding a CDS would not be bidding up AIG hoping that he could then unload the CDS at a profit, cost way too much and way too much risk.
Yes there are all sorts of bonds, swaps, etc, but this action in AIG does not seem like an arb at all. Of course, I could be wrong, there are an infinite number of possibilities out there, and no one knows them all. Just seems like the least likely explanation for the run up.