Trading Now

Trading Now

Tuesday, July 28, 2009

A look at Volume and the futility of mutual fund management

*HFT has become the talk of the town of late so I decided to look for a Chart to illustrate some possible effects from low volume yet high stock prices. Rick Santelli, the Bond guy at CNBC, has been squawking about HFT and low volume and tonight he was hosting Fast Money. I felt as though my old pal Dylan Ratigan was back on top. Santelli knows that the recent run up into earnings season was done on such pathetic volume that there could only be one reason: program trading (Black Box is programmed to buy or sell at certain levels). Program trading allows companies like GS, who get orders from the Treasury to make sure those bank stocks don't go down below their secondary offering price at all costs, to make it look to ijiot sucker investors who feel they missed the rally, that the stock market is going to continue to go ever higher and why aren't I invested? That's what I hear all the time too: "I saw the market is up today, shouldn't I be putting money in?" Of course I say: NO! But trying to explain why has made people sick of listening to me.

The most interesting thing is notice when the volume really spikes, either when selling is cascading, or after the market already is at the top. In other words, the market catches the most people at the worst time: either you are selling when everyone else already has or you are buying when everyone has already left. This next chart will illustrate why you haven't made any money in the past decade. Mutual fund ijiots only buy when everyone else has already left YOU holding the bag.

HFT and program trading Black Box' only make it look like the market will never fall down. What you don't know is that stocks go up and down every day, based on EARNINGS. But when things are RIGGED, like they have been for months, then you buy at your own peril. When companies have run out of cost cutting ideas and people to fire, then we will see who is made of something that resembles a STRONG company. Stocks are still over priced and P/E ratios are still too high relative to this Recession. If the government and GS don't get out of the way, the loss will be too much for people to bear for a very long time.
David Swenson, the Yale Endowment Portfolio manager, considered to be a genius, says not to buy Mutual Funds. So why not listen to him instead of me for a change.

No comments:

Post a Comment


Wikinvest Wire