Look, first of all, I feel for any hapless investor that took more than just paper losses in any one of the HFT events that occasionally, but spectacularly roil the markets. The most recent "Aberrant Trades", as characterized by the NYSE regulators, affected two utilities' common shares, American Electric Power (AEP) and NextEra Energy Inc. (NEE). Their conclusion was to let these trades stand. To me, and to many legal minds, who in the future will bring class action suits to court, have grounds to argue the inverse result as precedent, and investors may stand to keep any gains otherwise considered to be "ill-gotten". If these events likely become more commonplace, and you "can't beat 'em", you might as well profit if possible.
I had that warm, soothing light bulb switch on while watching CNBC that Thursday, May 23rd. I also had a decent cash reserve from selling out of several positions up nicely. I collected the latest dividends and sold into strength. Since, like many, I anticipate a pullback to reinvest into, of course that cash is idle, at least the balance not committed to limit orders. Why not take a shot at buying some solid companies at fire sale prices?
I researched the recent price ranges for both AEP and NEE, and at the low ticks, they fell more than 50 and 60% plus, respectively. Now, bear in mind, those lows were mere fleeting moments, as upward realization of more normalized pricing from their lows resumed from the spike down at the 9:30 open, at 9:31AM. They both closed down, but barely. AEP shares closed down 31 cents, or 0.6%, to $48.28, while NEE ended lower by 94 cents, or 1.2%, at $78.22. This selling pressure occurred on a fairly choppy day, relative to the last several months. Many of Seeking Alpha and other investors have been debating whether or not a correction of some size is likely, or overdue. I happen to be in this camp, hence my first selling since Dec. 2011/ I can be wrong, of course, but last week was exactly when I anticipated some increased selling pressure to start, right after a feel-good Memorial Day, just in time to catch some complacent, overly bullish investors off guard.
Regardless of which side I get caught on, last week (especially Fri., between 3:35-4:00PM), was a good entry point for me to start-justifying a long 15 hr. market watch. Regardless of correct timing, any magnitude of sell-off, and Fed action, currency and bad bond news, or sentiment, the technical signals are now additional factors that come into play. The noticeable equities that sold off have been the yield-associated classes. REITS, consumer products/staples, some mixed (and earnings-driven retailers), and, of course, utilities (already correcting nearly 10%), even large pharma. Not only are they yield rich, generally, but they also represent a significant portion of the indexes, and index products.
They're both widely-held, and have supporting options and futures derivatives. Since institutions comprise most of the ownership, a natural by-product serves these parties as sources of liquidity. These are the HFT "targets", because of their market cap and float size, and a great place to Put in Ridiculously Low Limit Buy Orders, 35-50% below their current prices. I'm emphasizing the utilities, big pharma, and consumer staples, as well as the tobacco producers. Any increased selling throughout the markets will, as it has been in May, is hitting all the (diminishing yield) dividend payers.
2010's flash crash was during the midst of the financial crises, with Greece and the Middle East as additional factors. We're at another possible inflection point globally, as the pending Iranian election, news from Syria, and escalating Turkish riots factor in, let alone Ben Bernanke's fed talk, recent spats of renewed terrorist attacks (Ricin in NYC and the White House), an administration ensnared in turmoil here, as well as European unemployment and discontent-notably in Germany-that reopen those scabs in Greece and France. Enough trouble's brewing on the macro scene to increase the odds of triggering a selloff. The slight sentiment change in our markets, from no news is bad news, back to Any news (even good economic news), leads us closer to tapering-off scenarios.
History repeats itself. Mini-500 action spurred 2010's downslide. Even after adding trading curbs, AEP and NEE went down fast and hard. I'll wager some "extra cash" on the possibility that some quality stocks, particularly some experiencing recent sell action, can likely be hit, just as in the past. PG, AEP, CAT, PM, MO, DD, DE, EXC,HPQ, IBM, INTC, MSFT, SO, D, FE, BMY, PFE, JNJ, MRK, KO, LO, UTX, T, VZ, -some may look at these as slow growth, but they all have a safety component, hence their strong franchises. They're all bond proxies facing more likelihood of accelerated selling, unlike the financials currently. As this may be going into algorithmic program coding parameters, as we speak. Potential derivative like action may also be captured in the ETF/ETN universe, more specifically SPY, SFLA, QID, QLD, QQQ's and the other 2-3 times, high-leveraged plays, but I think that in any intense selloff, that's for the traders. I may do that in the right scenarios, but I don't want to hold those types of paper. I'm happy to hold and stay long the blue chips, or have a great company to sell with near instant 30-40% gains.
They look a whole lot better if you can get them at 33-50% off, if only due to the market equivalent of "war profiteering", and only for 1-5 minutes! If the trades are allowed, as with AEP and NEE, and they're not a good portfolio fit in your individual portfolios, you can sell them, of course. Remember, I'm employing unallocated cash, so why not take a passive chance at a long shot, while it's sitting idle.
I have no ethical qualms about acting like a tree and bending in the wind. I'd rather bend than be broke, and I didn't start the "war". Uncle Sam drafted me, and Bernanke made me fight. And that will be the defense I employ, should I ever have to retain an attorney and go to court to fight for my fast profit. And I have legal precedent now on my side.
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