Satan Is a High-Frequency Trader

Satan is now firmly in control of the markets.

No, we’re not talking about Ben Bernanke, aka Edward Quince.  His time has passed.  We’re talking about a high-frequency trader who also happens to be hell’s CEO.

satanAs evidence, consider Thursday’s market plunge.  The Dow Jones Industrial Average (DJIA) fell 334.97 points, its largest loss of the year.  The drop took place, as Zerohedge noted, after “ ‘someone’ canceled-and-replaced orders for 666 contracts 26 times in the 1130ET to 1200ET period,” after which “selling accelerated lower, no reversal, to close at the lows on heavy volume.”

The number 666 is, of course, the winning number in hell’s lottery.  To trade 666 contracts 26 times, you need a lot of capital in your account.  Most traders would avoid using the devil’s number, but someone – or, more likely, some firm – was trying to make a statement.

What could it mean?  That Satan is in charge, of course.

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September Is the Cruelest Month

Oh, it’s a long, long while from May to December
But the days grow short when you reach September.

                                                                  September Song

T.S. Eliot was wrong about April being the cruelest month.  For investment managers, it’s September.

It’s bad enough that September marks the end of summer, shorter days, cooler weather, the beginning of school and the almost annual Red Sox meltdown.  It’s also the worst month, by far, for stock market performance.

Since 1955, the Dow Jones Industrials Average (DJIA) cumulatively has lost just under 50% during September, according to “Jay on the Markets.”  In contrast, the DJIA has gained 200% in April over the same period.  So, in spite of Mr. Eliot’s claims, April is the kindest month, not the cruelest.

May (-10.6%), June (-20.9%) and August (-11.6%) have also registered net losses over that period, as the chart shows, but September losses (-49.1%) total more than those three market-declining months added together.  In other words, September is a big loser.  Take September out of the calendar and the market would historically be flying high.

Read On, Before You Sell

So should you sell all of your stock holdings on August 30, the last trading day before September?

Before you do, keep in mind that “past performance is no guarantee of future performance,” like those folks in compliance like us to say.  That holds whether past performance was good or bad.  Note, too, that the DJIA has had a positive performance in six of the past e

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Don’t Worry, Be Happy

“In your life expect some trouble 
But when you worry
You make it double
Don’t worry, be happy…”

                                              Bobby McFerrin

Higher and higher.  The stock market has gone in only one direction since our last post and that’s been up.

As of yesterday, the Dow Jones Industrial Average had risen for 10 straight days for its best performance since 1996.  The S&P 500, likewise, surged past 1,560 having gained 3.05% in the past month.

Don’t worry, be happy

And, so what if the world is going broke, if that genius Ben Bernanke continues printing money, the Dow could rise from its current 14,500 range all the way up to 18,000 by the end of the year, according to Wharton School Professor Jeremy Siegel.

Don’t worry, be happy

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The Yin-Yang Economy

Last week, with sequestration pending, President Obama and others warned of airplanes falling from the sky, tainted meat being served and schools being closed because of teacher layoffs.  The budget cut news was so bleak, tours of the White House were canceled.

This week, the stock market hit a record high.

It may be a coincidence.  The Washington Post gave sequestration no credit for the record and said the market was boosted by China’s announcement that it would put more money into the economy.  There is, it seems, a Keynesian explanation for everything.

But, as The Wall Street Journal noted, “One thing for sure, the stock market doesn’t mind the federal budget sequester.”

The only mention of sequestration in the Post story was to note that “some” are warning that it could dampen economic growth.  Of course, economic growth has been so slow, if it’s “dampened,” it’s possible that no one will notice.

Time to Invest in Stocks?

So with the record having been achieved, is it time to pile into the stock market?

Before you call your investment manager and shift your asset allocation to 100% stocks, consider the yin-yang of the current economy.  In Chinese philosophy, yin-yang describes how seemingly opposite forces are interconnected and interdependent, which seems to fit the U.S. economy quite well.

On the yang side, as the Journal noted, “stocks ar

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Investors Are Back … So Expect a Correction

Individual investors are moving in.  And the smart money is moving out.

With the Dow Jones Industrial Average pushing past 14,000, individual investors jumped back into the stock market, it looked like happy days were here again.  But were they really?

When average investors are pouring money into the market, it’s a sign that a correction, or even a bear market, is coming.  Likewise, when corporate insiders are selling their shares, look out below.

Individual investors have pulled more than $150 billion out of U.S. stock mutual funds since 2009, but they were coming back in January with a net investment of $10.3 billion.  Include exchange-traded funds and a record $77.4 billion was invested in January, according to TrimTabs Research.

Conversely, there were more than nine insider sales for every buy last week, among insiders whose stocks are listed on the New York Stock Exchange.

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