Psychosis

by Larry Levin

Was Wednesday's massive rally real, or is the market suffering from psychosis? Was there news that warranted such a move? What about the volume? Is anything real anymore?

Wednesday's volume was lethargic. The NYSE consolidated volume was just 1.19 billion, which is barely better than the 10-day average and LOWER than Tuesday's. One should expect massive volume - much greater than the 10-day average - to support such a wild price swing.
ADP jobs data came out before the open and was worse than expected, showing job losses are increasing.
Construction spending was atrocious, coming in far worse than expected.
Auto sales were worse than expected.
The "savior" was the ISM manufacturing report that came in at a reading of 56.3 when the market was expecting 53.0. Bloomberg, however, didn't pump up the details like I expected..."Lagging factors gave what is a bit of a deceptive boost to the ISM's manufacturing index masking a further slowing in the key leading index of new orders...But this growth is in general business activity: production, employment, inventories. These three factors all accelerated in August with a special note on inventories where the gain may reflect in part an unwanted build. New orders slowed but just a bit, down four tenths to 53.1 for its lowest reading since the manufacturing recovery began in the second quarter of last year. Unfilled orders also slowed, down three points to 51.5 and its weakest reading since December. The slowing in order build is certain to limit future improvement in business activity."
One should also question if the ISM will be revised lower. After all, the recent regional (Philly, NY, Chicago) manufacturing and general business activity reports have not been good at all.
How strong is a low volume rally that, once it rallies for a mere 20-minutes, goes into a ridiculously narrow hibernation range of just 4.50 points. When the initial knee jerk reaction to the "phenomenal" ISM data subsided, the market barely moved over the next 5+ HOURS.
So was Wednesday's rally real or did a bout of psychosis take over the market?
Before you answer #8 consider the rampant amount of ninety percent days the market has been experiencing. Since late April (the high) the market has had 89 trading days. Of those 89 days, 14 were panic selling days (90% down day) and 13 were panic buying days (90% up day). This means that nearly one third of all trading days since the high for the year were panic days of either direction, while the 10-year average is less than 7%.

Real or psychotic? Human driven, or robotic (HFT)?


Previous Day's Trading Room Results:

Trade Date: 9/1/10

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


1) No "Secrets" trades filled today.

2) Algorithm positions (6)

3) “Reading the Tape” positions (5)…combined Secret’s, Algo, & “Reading the Tape” total… -5.25



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