Trader Tax

by Larry Levin

Today's market open higher and slowly tried to auction higher. The volume was light which made it difficult for the market to build a head of steam and once it failed to make a new high, sellers hit the bid. However, the selling was not strong. When the early low of the day held (initially), locals did their best to bring the market up but the public sold them all they could handle. When that initial low was finally breached, institutions were heavy sellers.

This process repeated at yesterday's spike-low, which was driven lower by the institutions as well, Goldman Sachs in particular. Locals supported that 760.50 low, until they couldn't. Once this level failed, the big boys (GS, MER & JPM) sold the hell out of the market, slapping any buyer with more than he could handle, thereby driving it down. That last bought of heavy selling cost the S&P 10-handles.

Yesterday's rally was driven by very aggressive floor traders and sold back down (easily) by the institutions. Today was not a replica of yesterday, but similar nevertheless. Until the locals are sellers and the institutions are aggressive buyers into the close, the market will be weak.

This morning's bartender of bad news served the market a whiskey with a beer chaser: unemployment and durable goods data. The weekly unemployment data was bad. In the week ending Feb. 21, the advance figure for seasonally adjusted initial claims was 667,000, an increase of 36,000 from the previous week's revised figure of 631,000. The 4-week moving average was 639,000, an increase of 19,000 from the previous week's revised average of 620,000.

The commerce department reported that orders for U.S. durable goods fell for a record sixth consecutive month in January, signaling companies are cutting back on spending as customers worldwide cut back. The 5.2% drop was more than twice as large as projected and followed a 4.6% decrease the prior month.

Some of you have heard of a particularly idiotic idea bouncing around in Congress. Representative DeFazio of Oregon has a brilliant idea; he wants to place an onerous tax on every single stock, bond, ETF, mutual fund, and futures transaction. The scheme is to make Wall Street pay for the TARP bailout. Now for those who can't think beyond "what's for breakfast?" this probably sounds great. But you would be wrong.

First of all, if the tax was only charged to the trades that Goldman Sachs and pals did, they would pass the cost along to their customers who did nothing to cause the current problems. The Bill, however, will tax EVERYONE who makes a financial transaction like; day traders, floor traders, pension funds, bond funds, mutual funds, etc.

In other words, it will tax YOU either directly via trading accounts or indirectly through a 401k or pension plan.

A copy of my email to the CME Group is below. They replied, "We're on it!"

I wonder if this email will be a surprise to you. Perhaps you are already aware of this situation. If it's new, I hope your media department can spread the word about the potentially horrendous legislation making its rounds in DC that could KILL your business.

Representative DeFazio of the 4th District in Oregon wants a transaction tax on all securities trading, including futures. This tax would be ? of a percent on all trades, possibly on each side. The brain-dead logic of this idea is that it will fund the TARP. Rep. DeFazio believes this is a punishment for Wall Street, yet it will only punish your customers.

Consider a 1/4% of one ES contract. Even if the tax is only on the margin it will be a killer, since that equates to $12.50 per side. How many floor traders can earn a living paying a ridiculous $25 per round turn? NONE! How many day traders in offices or at home can make a living with the tax added? NONE!

Say goodbye to liquidity if it passes. Say goodbye to the CME Group and all other US exchanges if it passes, at least in their current form.

I'm not usually a proponent of lobbyists, but the CME Group sure better get someone on the phone NOW with the idiots masquerading as Congressmen NOW to stop this.

Please read http://www.govtrack.us/congress/billtext.xpd?bill=h111-1068

You can sign the petition against this dim-witted idea here http://www.rallycongress.com/no2tradertax/1536/

The good news is that a bill like this has little chance of passing. In fact, I spoke to a "connected" RIA last night who says it is DOA. However, let's make sure it does die on the vine. Please sign the petition and write/call your Congressman. If you're lucky, they may have a staff member that knows how to use email.


Previous Day's Trading Room Results:

Trade Date: 2/26/09

E-Mini S&P Trades*
(before fees and commissions):


1) PP (R1) sell @ 9:35am at 777.50 = +1.00 & b/e (2-lot)

2) IDVA buy @ 1:00pm at 765.00 = +0.25 & -1.25 (2-lot)

3) VA buy @ 2:00pm at 754.75 = b/e (1-lot)

4) Algorithm positions (9)...combined SofT and Algo total...+9.50


Electronic (YM) Mini-Dow:


1) No trades today



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