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Michael Filighera
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Michael's history with financial markets dates back to 1979 on the Pacific Stock Exchange Options trading floor. Michael has traded in the US, UK (London Traded Options Market), Netherlands (Amsterdam's European Options Exchange), and Germany (DTB). He is also an internationally published... More
My company:
Logical Signals
My blog:
Logical Signals
  • Reality Check -Who's Right Who's Wrong? 0 comments
    Aug 12, 2014 3:59 PM

    Ok, I agree it has got to be tough to be overpaid, way overpaid, to produce daily babble as to why the markets are going through this gyration or that gyration. As if a need for a specific story to explain what is driving the elusive investor to make their move in either direction on a hourly or even daily basis is actually necessary.

    One day it is geopolitical worries and the next its a FED announcement, economic figure, earnings reports from the titans, or what color JP Morgan's algorithm is flashing. It tends to become gibberish from a group of so-called experts that obviously are making way more money misleading the masses of asses than actually contributing something worthwhile. How these media outlets stay on the air and become a staple for every trading desk around the world is due to a far great marketing campaign and the ability to charge big money to advertises than actual financial market awareness or knowledge that is useable or reliable. My heart does go out to the producers of the various shows that must fill airtime every day - and hopefully attempt to make it appear pertinent and catchy. This litany of financial market "happy talk" is impressive.

    Let's face it the economy is creating jobs at over 200,000 per month for the first six months of 2014. When added into the grand total of jobs added since mid-2009, which for all intents and purposes marks the starting point for the economic recovery, it amounts to over nine million jobs added. Now add to that the low interest rate environment that just doesn't seem to want to quit - actually it can't just yet - but in any case low rate3s supports high asset valuations in stocks and housing. Inflation on the other hand continues to be the US's greatest and best exported product - which when it continues to be flow from the mouths of reporters and news anchors on the various financial media stations it is taken as gospel. All is right with the world. HA!

    Ok - so here is a headline that you won't hear or see in the financial media - the equity markets and economic fundamentals are on a collision course and from what it seems as the moment it will be a head on collision. Either the equity markets or the economic fundamentals seems to have been out partying a bit too late and way to hard and have gotten onto the northbound freeway via an exit ramp. Either the economy needs to improve (for real) very rapidly and actually unexpectedly and turn its fundamental weakness in reverse - or - the over inflated stock values are speeding right into a head on crash that will knock prices for a seriously precipitous fall.

    I wonder how many algorithms actually are programmed to get the employment figures right. I know we continue to hear from DC politicians, who obviously want to keep their platinum insurance and diamond parachute policies in place for themselves - but enough with the happy talk on just how many jobs are being created. Seriously, there in lines the problem - the actual nature of job creation. In June it was reported that 288,000 jobs were created. The reality behind the number is that full-time jobs declined by 523,000, while part-time jobs increased by about 800,000. But, hey no one ever asked for specifics - that would be too difficult to present. A flask back to Jack Nicholson's epic performance in A Few Good Men continually reminds me when Tom Cruise asks Nicholson for the "Truth" - to which he responded "The truth - You Can't Handle the Truth." Somehow I believe there are many in DC that actually believe the common citizen can't handle the truth so why tell them - let them be blindsided.

    Back to the June employment numbers where the reported increase in net jobs was cleverly masked by a huge loss of full-time jobs which just happened to be offset by a glut of new part-time jobs that offer fewer hours, lower pay, and yep you guessed it few benefits. Granted it is likely better than nothing or no job at all, but they (part time jobs) are not the kind of jobs that will support discretionary consumer spending which believe it or not the growth of the economy depends on.

    Ok, so let's walk this down the line a bit - when the labor force participation is low and likely will continue to drop as full-time employment drops into a sinkhole the productivity of those working will also decline. A major drag on growth, which is because capital expenditures have slowed - businesses are keeping up with demand by hiring part-time workers instead of investing in the plants and equipment needed to make full-time workers more productive.

    Continue to walk down this slippery slope to see that declining full-time jobs, declining productivity and slowing capital investment creates stagnant real wages. When the full-time worker can make more they don't spend more without borrowing and even though the FED has been liberal with holding rates at historic lows - that has not flowed freely to the full-time worker. So now we get to add that companies won't invest in equipment if consumers can't spend the money to buy them. Do you really believe a recovering economy would continue to offer 0% for 5 years or more to increase car sales because they can't keep their inventory full as the cars are flying off the lots?

    The news from overseas doesn't get any better. China is slowing quickly and may be on the brink of a credit collapse. Eurozone growth is near zero and even the German powerhouse economy, the driving force behind European growth is slowing as the situation in the Ukraine, Russian and China remains at crisis levels.

    Structural reform is a primary job of the US elected Congress and Executive branch - not the Federal Reserve Bank. But hey since the White House and the Congress barely speak to each other and have determined to bring the entire game to a political standstill - investors are led to believe that it will be Wall Street and the Federal Reserve to the rescue and therein lays the problem. A turnaround in growth can basically only come from structural reform - not from continuous money printing.

    The markets continue to light up on Monday as the algorithmic traders jumped with both feet. Volumes tended to be on the lite side and outside of a ridiculous rally in PCLN up over 2% to finish at 1310 on the backdrop of piss poor guidance - It was amazing to watch the shorts get crushed there. But should you have missed that there was always TSLA jumping just over 4.5% reaching $260 as traders continue to flock back into the options to play volatility. To round things out NFLX, was up $5.70, CMG rose $10.85 to finish at $680.65, BIDU, the Chinese magic internet savior continues to climb adding over $5 at one point before settling back to finish up $2.89 at $218. Biotech saw their fare share of pump today but most of that came in the small to mid cap stocks as the Russell 2000 managed to climb over 1.5%.

    It is all very typical "B" wave actions folks. I hate to say it but don't be fooled or lulled into believing this will just continue for good. It wont'. I believe much of the chatter comes from algorithmic traders - where programs run their prime directives and when those are met - bingo a trade occurs. Huge positions are pushed back and forth giving a strange pall of security or security as stock prices get pumped higher and higher. Remember though, it is rare these traders are just buying or selling the stock - that isn't they way the algorithms work. Computers are very good and very fast at selling and buying within seconds of each other. Trades complete - money in the bank - move on. The process does produce incredible fodder for the financial media, but honestly if you went and asked the traders why they were buying or selling - they wouldn't be able to tell you - it's a computer.

    So, while we wait for the inevitable to actually catch up and crush the markets it has in my mind become increasingly more important to advocate and adhere to day trading. The broader index futures continue to provide ample trading opportunities as to commodity futures, treasury futures, and precious metals futures. Not ever trade works and not every day promises to be a flood of activity but I continue to find several markets that are trading and producing buy and sell signals that are tradable.

    Steer the course and don't compare yourself to everyone else. You are not they and they are not you. Remember to trust and believe what makes you unique at this moment in time and in this situation and allow others to choose for themselves. Don't be swallowed up by the chaos and false emotions swirling around. Remember it's just a number.

    Three-keys

    Trading the number remains key to being able to reduce and separate the "noise" from opportunity. This takes knowing and executing a well-defined strategy and allows you to see opportunities amongst the "chaos" and by trusting the mechanics of your strategy, be able to take advantage of them.

    Opportunity continues to knock on our doors. While it doesn't come without risk, risk can be defined and more manageable. Volatility and broad moves are exactly what a day trader desires and being able to respond without questioning is a luxury many are unaware of.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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