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Blatant Manipulation In Addition To High-Speed Trading! KORS, COH, GOOG, GOLD, RGLD

Sep. 22, 2012 6:27 PM ETCPRI, TPR, GOOG, GOLD, RGLD
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The market finally decided to take a respite this week and traded in a tight range. Profit-taking was seen in the industrials after getting inline manufacturing data from China. The retail sector also pulled back a bit, although KORS popped again (up +9.26%) on Friday after the company raised its guidance; on the other hand, COH fell 4%. GOOG charged higher to end the week at $734, closing in on its all-time high. Gold itself really didn't go anywhere, but, some gold miners continue to shine. Both GOLD and RGLD are at their respective all-time high this week!

We didn't really trade much this week. Here are the closed trades:

  • 11:50 | HappyTrading GMCR ($26.80) Sold to Close 0928P28 Sep 28 put, at $1.80 +64%
  • 12:24 | HappyTrading FDX ($85.15) Sold to Close 10P85 Oct 85 calls, at $1.80 +4%
  • 06:59 | HappyTrading GMCR ($29.09) Sold to Close 10C31 Oct 31 calls, at $1.57 -34%
  • 11:34 | HappyTrading VVUS ($24.60) Sold to Close 10C23 Oct 23 calls, at $2.70 +66%

This week, we started to hear more about how high-speed trading is affecting the markets. Senate had a hearing on this issue. Some claimed that the high-speed trading is helping with the market liquidity. However, market liquidity has never been an issue. What high-speed trading is doing is preventing retail investors from returning back to the markets. By preventing retail investors from coming back, it is actually cutting down the market liquidity. Whatever market liquidity that the high-speed trading is adding is false anyway, as it does not give the true story as to where the markets are heading!

What it all comes down to is "greed". Supposedly, high-speed trading is trying make just pennies, or even less, on each trade. But, it'll be much better for everyone when more people feel safer to return into the equities market, because more money will come back to the market. High-speed trading is only benefiting the few that have to tools and the capital to do it.

In addition to high-speed trading, there's now even more blatant computerized manipulation. What these programs do is to identify smaller trades and to trade against them. It is becoming more and more blatantly obvious! Little guys now can affect a stock's intraday movements. You can easily make a trade and trigger the programs to kick in (often within 5 minutes), and the market will start to trade against your trade, moving fast. This happens more often when the market is stuck in a tight range, such as this past week, as stocks were hardly moving and could be manipulated in either direction. If you get out of the position, the stock may then move back to its original point.

Again, this brings the same issue as the so-called "high-speed" trading. I think they are all the same problem. Ultimately, what these programs are doing is benefiting the few that have the power to do these kinds of trades, to make the markets more confusing, and thus to prevent retail investors from coming back into the markets. The end result is that these types of computerized trading hurt everyone. As when true liquidity is in the markets and there are more people in the markets, everyone wins. The few that are engaged in these computerized manipulation will make even more money without them.

Sadly, as the human consciousness moves forward, realizing that everyone is connected, and that there will always be plenty for everyone, it is the ones that refuse to evolve that's holding everyone back. What they are holding on to is the backward notion that perhaps one can only succeed at everyone else's expense. What they have a hard time to accept is where the human consciousness is moving toward collectively, that as others do better, so will they; as the average person does well, people on the top will do even better. The converse is true: as the average person suffers, people on the top suffer as well (because the social structure collapses)! In a paragraph, the above is basically what the world has gone through in the past decade, and more importantly what the world is going through right now to undo the damage!

For now, we have to recognize the fact that these programs do exist and trade (or not trade) accordingly. I've written about this before. Just because there are these intraday wild movements, it does not mean we have to trade those trades. Honestly, it took me a while, probably more than 6 months to adjust to these computerized trading, which probably have sprung up in the past 2.5 years. So, don't hurry into trades. More often than not, it is much better to not make a trade than to try to catch a fast-moving one. This is also why trading in the early mornings (first 30 to 90 minutes) are often headfakes. You'll probably find much better percentage of success on your trades when you wait until the afternoon to open a new trade. Don't try to compete with the high-speed trading. See the high-speed trading as smokescreens; there are always real trades underneath.

As an example, take a look at this intraday chart on RL:

You can clearly see how the direction reversed after the first 30 minutes. So be patient and wait for the dust to settle. If a direction is real, it should hold for at least a few days. Most of the time, there'll be better entry points later in the day.

Have a wonderful weekend, and I'll be back on Sunday evening with next week's Market Forecast!

Happy Saturday and HappyTrading! ™

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