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David White
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David White is a software/firmware/marketing professional and a long time investor. He has worked in the networking field, the semiconductor equipment field, the mainframe computer field, and the pharmaceutical/scientific instrumentation field. He has bachelor's degrees in bioresource sciences... More
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  • Profiling HFT Targets Is An Important Part of Today’s Trading

    HFT comprises 70+% of all trading in today’s markets. It’s importance is unquestioned. The HFT traders will as Adam Smith said so famously act in their own enlightened self interest. When you realize this, you should ask yourself , “how can the HFT traders make the most money?”

    The best opportunity for HFT traders is popular, highly traded, highly shorted, high institutional ownership stocks. Why? HFT traders make great money when they can push a stock up quickly (popular stocks in sector rotations are targets too). They buy it. Then they immediately sell it for slightly more. They can repeat this process thousands, tens of thousands, or hundreds of thousands of times per day. If the stock is going up quickly, they can make several times as much money as they do for a slowly rising stock. This is because the difference between the buy price and the sell price is substantially larger, even when only considering a small fraction of time. If a highly traded stock has high institutional ownership, the actual float -- the amount of the stock people are trading -- may effectively be much lower than the recorded float. Institutions generally trade infrequently. This means that an analyst upgrade of the stock allows the HFT traders to push the stock up quickly, if they trade it in high volume. The HFT traders can simply trade it back and forth among themselves at ever higher prices, with occasional interruption from traders who are actually keeping the stock for more than a fraction of a second. If the stock is highly shorted at this time, some of the shorters will lose faith in their short positions as the stock goes up. They will add to the up volume themselves. Momentum and market emotion traders will add further to the up volume. My belief is that there is not huge collusion among the HFT in these actions. However, they recognize the scenario. They know by convention that it is an HFT setup. They all tend to take the same actions to move the stock up. The same scenario plays out on overall market moves upward. Most of the highly popular, highly traded, highly shorted stocks are high Beta stocks. On an obvious market push upward, HFT traders will act as described above.

    The net result of all of this is that stocks become more over valued than they might normally. The HFT traders only own them for a fraction of a second at a time. They simply turn their programs off when they stop making money. The short term traders may benefit or may get hurt by this, but they should be aware of what they are doing. The buy and hold investor is the real victim. Much of the time that investor cannot buy the stock because it is too overpriced. Or if that investor does buy the stock, he or she may get stuck holding it as it crashes soon after the HFT trader walks away from it. The HFT trader does eventually walk away when the stock becomes too top heavy. The buy and hold investor can thank the HFT traders for making the likelihood of big losses even greater. Is it any wonder the individual investor is scared of this market? Even stop losses often fail to work well. The extra volatility induced by the HFT trading makes stop loss results questionable at best for a long term holder.

    Still the HFT traders do create some opportunities. If you can identify the approximate top or bottom in one of these cases, you can make a lot of money going along for the ride up or down.

    Disclosure: This article is not specifiically aimed at a particular stock.
    Sep 14 1:24 AM | Link | Comment!
  • The Senate Wall Of Shame

    Senators have voted along party lines in general on the Financial Regulation bill. Knowledgeable Senators know that the bill will do far more damage to an already weakened economy than it will do good. Yet they vote along party lines. Some justify this by saying their voter mail/email confirms that FinReg is desired by the majority of their constituents. This is a cop out. If they have bothered to understand the FinReg economic implications, they know it is a bad bill in sum. It may have a few good items, but it will overall be economically destructive. They know most of their constituents do not understand a bill they can barely grasp the implications of themselves. If these “vote the party line” / “appease the voters” Senators vote FinReg into law, they may well be torpedoing their state’s economies. CA and IL are on the top of the Cumulative Probability of Default list for sovereign governments. Other big finance states such as NY, NJ, CT, MA, and TX are troubled too. Some are very troubled. CA, IL, and NY get huge amounts of tax revenues from the financial system. They cannot afford at this time to have their tax revenues cut further.

    FinReg will make some banking operations unprofitable. These jobs will move offshore. It will cut into the profitability of others. Some of these jobs will move offshore. It will require more capital for the same financial operations we do now. This means a big tightening of already tight credit. Tight credit means fewer businesses will be able to grow. It means fewer jobs will be created. FinReg will make banking more cumbersome and less efficient. This is not what we should be aspiring to accomplish.

    The government suspended mark to market accounting because it believed mark to market would lead to a complete failure of the banking system if it was not suspended. Now in their schizophrenic wisdom Congress is acting in direct contradiction to that action. The system is too weak at this time to soak up this kind of histrionic schizophrenia. Many worldwide factors have already been conspiring to send the US economy into a double dip recession. The last thing the US needs is a dose of poison for the banking industry to help it along this path.

    Feinstein and Boxer are both from the SF Bay Area. They should both know how negative FinReg will be for their state. Dodd probably knows best of all. He seems to think he is compromising as best he can. I have no doubt he his trying very hard to craft the bill as best he can. However, he does not control it. He should see the economic harm coming. He probably does. This bill does not protect the financial system. It instead attempts to sterilize the banks. That just moves certain risky functions out into less well regulated entities. It moves some banking functions offshore, resulting in a net loss of jobs and banking income for the US.

    Is getting to punch the banks in the eye worth the cost of a new recession or even a depression? To me it definitely is not. When Ben Bernanke recommends against the Derivatives portion of the bill, in direct opposition to the head man, Obama, you can be sure it is a mistake for the US economy. Dodd has tried to kill a lot of the bad parts, but he has not been successful enough. Instead of listening to the sanity of the top economist Bernanke, the Congress has been listening to bullying populism on the part of its chief executive, Obama. It has been listening to an Agriculture chair from one of the most financially backward states in the Union.

    To counter Bernanke, etc., Obama has brought in an octagenarian in Volcker to back his case. He is so out of touch with reality that he thinks the world still revolves solely around the US and European financial systems. It is just this kind of thinking that is hurrying the demise of those systems.

    Senators should know what I have said above is true. They should act on it with their votes. Below is a list of Democratic Senators who will be betraying their states by voting the party line on FinReg.

    Boxer - D - CA

    Burris - D - IL

    Dodd - D - CT

    Durbin - D - IL

    Feinstein - D - CA

    Gellibrand -D - NY

    Kerry - D - MA

    Lautenberg - D - NJ

    Lieberman -D - CT

    Menendez - D - NJ

    Schumer - D - NY

    And that likely cross over Republican Brown - R - MA

    All of these states derive significant revenues from the banking activities that will be constricted or hurt by FinReg. All of these states already have significant financial problems with their state budgets. When the double dip recession/depression hits in these states at least partially because of FinReg, it would be wise of voters to remember that these people acted to put them there. “I just voted the party line” doesn’t cut it in my book. In difficult times, it is important for the leaders to stand up. If all Senators are sheep, what are they doing in Washington? None of the above Senators will be acting in their constituents best interests, if they vote for FinReg. They should be ashamed of themselves if they do, especially Dodd (perhaps the most knowledgeable). He is retiring at the end of his term. He doesn’t have to worry about re-election. He should “man up”. If it means defying Obama and populism to do what he knows is right, he should still do it!

    I would point out that CA's Senatorial candidate Carly Fiorina, a former CEO of HP, seems to agree with these sentiments. Of course, she wouldn't know anything about economics either, or would she? Oh, she did further mention that she was opposed to the increase in bureaucracy that the FinReg bill would engender. Those following my blog know I did not simply parrot her ideas. People can agree without that.

    Disclosure: No postions at this time
    Tags: SPY, DIA, QQQ, UUP, FXE
    Jul 01 12:55 AM | Link | 1 Comment
  • A Few Stocks Primed For A Short Term Bounce

    The markets are now far oversold short term. That does not mean they will go up. However, it pays to be prepared for what might happen. The European markets could go up tomorrow if the German parliament (as expected) approves the bailout package. This might stabilize Europe in the short term. Oil is oversold. It is primed for at least a short term rebound as we move to the new month for futures contracts. I could go on, but none of these reasons guarantee we will get a bounce. Traders will be able to tell better Friday morning. I have identified a few stocks that should surge on a rebound: WHR, HPQ, CSCO, FSLR, and PCLN.

    WHR -- great recent results. Most growth came from the Americas and Asia. It has perhaps fallen inappropriately. It should bounce on any bounce.

    HPQ -- great results. CEO Mark Hurd did not think European business was going to get hurt much even in a slowdown.

    CSCO -- great results. It got hit because it did not raise FY2010 guidance. However, the CSCO fiscal year ends at the end of July. Chambers was likely being conservative as always. With only one quarter to go, he likely wanted to keep some wiggle room for CSCO. They take pride in beating virtually every quarter. Plus CSCO has a huge cash position (over $30B). Historically the company has used this to purchase other companies on the cheap in recovery years. CSCO is likely to do that again this year. The acquisitions usually add to the bottom line. CSCO has already announced two small acquisitions (since earnings) in the last week. Both seemed good strategic moves. There will be many more. The odds are good CSCO will beat estimates for the rest of 2010 (our year). CSCO may beat them by a good margin if it makes some good sized acquisitions.

    FSLR -- a good solar company. Europe is a huge solar market. FSLR has been beaten down on speculation that that market may be in trouble. Any good news out of Europe could cause a short term bounce in FSLR.

    PCLN -- a top performer recently. It has been hit by the ash cloud, and the glum outlook for Europe. It is far oversold. Any good news in Europe could cause this to bounce significantly in the short term (Friday).

    Two companies that do a lot of their business in Europe (approx. 47%) are FLS and PCAR. Any good news from Europe should send these two up short term.

    Warning: I am not guaranteeing the market will go up tomorrow. The trend has been down. But the markets rarely go straight down. It doesn’t seem to me that this is quite the fall of 2008 scenario. Europe is reacting more quickly than the US did. It could still succeed to a large extent. A bounce on good news is probable, but not a sure thing. The emotion of the market can be hard to gauge. I don’t pretend to be the most expert at this.

    Good luck trading.

    Disclosure: I have a small long position in CSCO
    May 21 4:23 AM | Link | 1 Comment
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  • Momentum trades are bouncing strongly higher today. Don't forget FBI is investigating HFT. Bound to put a damper on momentum stocks.
    about 9 hours ago
  • Investors have to be extra careful now. There might be a rally on China GDP growth. But that was likely FALSE data. Downturn may resume.
    about 9 hours ago
  • If you have a good reputation, it is easier to extend it. You are often forgiven your mistakes. I hope I am building a good reputation.
    about 9 hours ago
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