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Weekly Wrap-Up Oct 5, 2012 + More On High Speed And Computerized-Algorithmic Trading: PCLN, NFLX, AAPL, GOOG, HPQ, IBM, CMG

|Includes:AAPL, CMG, GOOG, HPQ, IBM, NFLX, The Priceline Group Inc. (PCLN)

It's been a volatile week, but, the market still locked in a win to start off October. Energy stocks remained weak as oil continued to fall. Gold held its place and was little changed for the week. Techs were relatively weak. However, HPQ's drop was offset by IBM's rise and AAPL's weakness was a contrast to GOOG's strength.

CMG was gored by Einhorn's comment to short, falling from above $320 at the start of the week to $280 on Friday's close. NFLX popped over +20% for the week after bullish comments from analysts. Amongst our trades this week, NFLX and PCLN stood out with a +130% and +145% gain, respectively:

  • 12:09 | HappyTrading MNST ($57.14) Sold to Close 10C55 Oct 55 calls, at $2.85 +8%
  • 12:03 | Ecstatic Plays SLW ($40.00) Sold to Close 10C40 Oct 40 calls, at $1.20 -15%
  • 09:45 | HappyTrading AAPL ($657.50) Sold to Close 1012P650 Oct 650 put, at $7.00 -15%
  • 07:31 | Ecstatic Plays GRMN ($43.20) Sold to Close 10C42 Oct 42 calls, at $1.55 +45%
  • 07:15 | Ecstatic Plays PCLN ($641.00) Sold to Close 1005C630 Oct 630 calls, at $11.00 +100%
  • 06:57 | Ecstatic Plays PCLN ($643.50) Sold to Close 1005C630 Oct 630 calls, at $13.50 +145%
  • 06:55 | HappyTrading NFLX ($65.20) Sold to Close 10C60 Oct 60 calls, at $6.10 +130%
  • 12:24 | HappyTrading NFLX ($61.65) Sold to Close 10C60 Oct 60 calls, at $3.35 +26
  • 11:03 | HappyTrading GOOG ($574.30) Sold to Close 1005P750 Oct 750 put, at $4.70 +9%
  • 07:47 | HappyTrading POT ($42.70) Sold to Close 10C43 Oct 43 calls, at $0.75 -44%
  • 07:24 | HappyTrading GOOG ($758.50) Sold to Close 1005P750 Oct 750 put, at $3.60 -14%
  • 09:09 | Ecstatic Plays AAPL ($673.00) Sold to Close 1005C675 Oct 675 calls, at $6.60 -15%
  • 07:43 | HappyTrading BIDU ($121.90) Sold to Close 1005C115 Oct 115 calls, at $1.10 -66%

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The market was unable to hold its opening gains on Friday, after a surprising drop in unimployment rate, although SPX did come up to test 1470. AAPL's weakness might have raised some warning flags as it affects the market indices so much. It seemed like the market was cautious ahead of the earnings season, which will kick off next week. We'll do a more detailed analysis on Sunday evening in my Market Forecast. It'll also be interesting to see how Asian markets trade as China re-opens after a whole week off on holidays.

More and more discussions and attention are now being drawn to high-speed and computerized-algorithmic trading. The main concern is the confidence of retail investors, or rather, the lack of. Of course, the retail investors are correct in asserting that "the game is rigged". Since high-speed and computerized-algorithmic trading give big insitutions astronomic, unfair advantage (as if they don't already have enough unfair advantage), it is only natural that retail investors have developed deep distrust for the financial community.

The advent of electronic trading gave individual investors the access to investing and trading that were not available to them just 20 years ago. Now, online brokerages have more and more tools to help retail investors in their participation in the markets. The big institutions must have been feeling that they are "losing control" and must act to keep the scale tipped to their side (see my article on Blantant Manipulation In Addition to High-Speed Trading). The funny thing about trying too hard to be in control is that it often backfires. The flash crashes caused by these high-speed/computerized-algorithmic trading probably hurt the big institutions even more than individual investors. Although some big firms have enough capital to come back stronger, the end result is the deterioration of morale in the markets. I wonder why SEC doesn't start looking into banning high-speed and computerized-algorithmic trading. Are they really necessary? The argument for liquidity is only a pretense, as liquidity was never an issue. Ironically, liquidity is becoming an issue, as more and more retail investors are pulling out of the markets.

Things are always better when there is balance. That's the nature of the Universe. When only a few benefit from a situation, the situation eventually collapses, as those that are being prayed upon eventually leave. On the other hand, when most participants are gaining in a situation, that situation thrives as more and more people want to join the game. To bring back the retail investors, SEC must find a way to restore balance to the markets. One thing that it could do is to ban the high-speed and computerized-algorithmic trading.

Happy Saturday and HappyTrading! ™

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