Algorithmic trading (aka black-box trading among a myriad of other names) ostensibly requires the usage of sophisticated technological problems designed with the purpose of entering trading orders. The algorithm can use such variables as pricing of a stock, timing in terms of buying or selling at a specific instance, and accumulating or distribution a decided amount of shares of a particular stock. Oftentimes, algorithmic trading is utilized without the aid of humans. It is used by a variety of entities such as pension funds, institutions, or investor driven traders with the purpose of dividing large trades into smaller trades so as to mute the impact of the action on the markets. There are several types of algorithmic trading- the most notorious of which his known as high frequency trading in which computers make major decisions about initiating orders or cancelling orders based on electronic information before mere humans are capable of soaking in the data they see in front of them. According to an Aite Group Survey, almost 83% of the total volume is done by high frequency firms. It’d take a novel to discuss some of the impact these types of trades have had on the markets in the last few years. But the impact on day trading/day traders has been very noticeable. For immediate-term trades, the effect has been detrimental for many people. I realize this is a controversial statement albeit a true one in my specific case so let me back up slightly by specifying that when I say ‘immediate-term,” I refer to trades of 30-120 seconds in duration. Since I have not trend traded nor routinely held onto positions for extended periods in quite a long time, I cannot speak for that type of trading is going as I am supremely not qualified to do so. But this is not sour grapes rather the observation of behaviors that have not occurred in my very long career. I ostensibly call it the ’31 steps ahead and 30 back’ rule when right with massive uncertainty when wrong. When wrong, what I historically have always done and still do is exit almost as soon as I enter a position. For instance, if the high of the day for ABCD is 50 with a low of 48 (after trading in a range of 49.95 to 50 for 20 minutes) and I buy 2,000 at 50.02, I know I’d sell ¾ of it the moment it ticked below 50 with the balance if it got below 49.95 if the stock didn’t go my way. When right, as has been noted many times in this space I space out of it in ½, ¼, ¼ pieces on the way up with a goal of making at least 20 cents on the trades I do. Here’s the issue- the computers with super-smart programmers and programs built in are almost infinitely better at trading than I am. They know the same patterns I know (and undoubtedly tens of thousands more). In the aforementioned example, the stock may now fall to 49.89 and then rally to 50.08 before going to 49.94 and up to 50.12 and down to 50.01 and up to 50.10 an down to 50.03 and up to 50.14 and so forth. Thus, particularly after the first few minutes of the trading day (especially in the middle of the day), a particularly astute observation cannot be adequately taken advantage of in the way it used to be. On Jly 13, for instance, Sandisk (SNDK) announced a joint venture agreement with Toshiba and Apple (AAPL) rallied much of the session. But SNDK downtrended all day long. In the olden days, when a stock such as this after a huge run got to a low of the day late in the session with extended consolidation, it’d implode in any market weakness. After SNDK traded down to 45.41 at 10:57AM ET the morning of the 13th, it promptly smartly rallied back to 46 or so. It eased in all day from there. It took out 45.41 again at 1:09PM ET after two false takeouts of 45.40. After declining to 45.30 the next couple of minutes, it bounced back to 45.45. It then breached 45.30, trading on either side of that level nine times over the course of the next few minutes. It finally took out the 45.25 level…all the way down to 45.22 before bouncing back over 45.25 the same minute. And so forth all the way lower. Now, I am not bashing the automated platforms- quite the opposite. They increase liquidity among other things. Furthermore, I do not blame the struggles of any trader solely on the automated systems. But they make immediate-term trading when looking for major moves that much harder. Thus, this is certainly something to keep in the back of your mind whether it be not getting totally fooled out by noise nor being caught unawares by seemingly random moves. Automated trading is here to stay and will only be more noticeable as the summer progresses as humans take vacations while the computers stay at work. In a future post, I will discuss the effort that Direct Edge has as it has now become a stock exchange.
Markets in Asia were generally slightly stronger overnight albeit with marginal moves. In Europe, prices are up about 0.5% to 0.7% across the board. There was unexpected news out of Europe last night...Europe's largest airline smashed earnings estimates, their version of a consumer confidence report had its best reading in months out of nowhere, and the French finance minister said that Europe's recovery is occurring faster than he expected. The dollar is notably weaker across the board with gold down slightly and oil up slightly. Futures are nicely ahead in reversing yesterday’s move. Look for the gains to hold overall with a focus on the tremendous amount of earnings out there, the drillers, the relative weakness plays (AAPL notably unchanged this morning much of the morning for example) and anything that is rumored to be a subject of M&A activity such as GENZ.
Reiterating-
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
GENZ- rumored to be subject of imminent takeover
V- decent earnings
GMCR- decent earnings
CTXS- great earnings
OII- great earnings
CLNE, DE- featured on “Mad Money” last night
SKX- great earnings
ITRI- great earnings
CML- good earnings
LNC- decent earnings
IDCC- good earnings
LRCX- decent earnings
AMP- decent earnings
AEM- decent earnings
CYH- decent earnings
CHRW- closed near a high on good earnings
RIMM- closed near a high
SIMG- closed near a high on good earnings
LVS- closed near a high on good earnings
ABX- decent earnings
BC- decent earnings
EGO- decent earnings
LZ- good earnings
MCO- decent earnings
MOT- decent earnings
SHOO- decent earnings
TEN- decent earnings
POT- decent earnings
CELG- good earnings
XOM- decent earnings
GT- decent earnings
NOC- decent earnings
Bad-The following stocks have bad news and/or a weak technical pattern
AKAM- bad earnings
CLF- poor earnings
BMC- poor earnings
ESRX- poor earnings
CTV- terrible earnings
NLY- poor earnings
SYMC- bad earnings
VPRT- terrible earnings
NETL- poor earnings
OI- poor earnings
AMAG- poor earnings
CVD- terrible earnings
FMC- poor earnings
NVDA- terrible earnings
CEPH- closed near a low on poor earnings
EWBC- closed near a low on poor earnings
SLGN- closed near a low on poor earnings
UTHR- closed near a low on poor earnings
GR- poor earnings
RTN- poor earnings
BG- terrible earnings
CL- terrible earnings
LIFE- terrible earnings
K_ bad earnings
PNK- poor earnings
Earnings:
THURS JUL 29 BEFORE
ABX ADP AMSC
AVP BC BDX
BEN CELG CL
CME CNX COV
CRS DPS EGO
EQT GR GT
HP IPG IRM
K KBR LIFE
LUV LZ MCO
MNI MOT MYL
NBL NIHD NOC
NOV PNK POT
RSH RTN SU
TDW TEN TYC
VCI VTR WM
WMB XOM XRAY
THURS JUL 29 AFTER
AMGN APKT CQB
CSTR EMN EXPE
FSLR GNW IM
KLAC MET MFE
MWW MXIM NTRI
OIS PTV ROVI
RSG SRCL SUN
SYNA TSRA VALE
VSEA WFR WYNN
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
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