The Stock Market Is Now Trading Like a Penny Stock - Mike Swanson (08/24/2016)
On Tuesday something funny happened to me in the stock market.
I put in a trade on a fairly popular ETF that does close a million shares in volume on average every single day Tuesday morning.
Now I did this trade with an account I have on Etrade.
Normally trades through them take about 2/10's of a second to execute.
They are good, but this trade took almost four minutes!
I was shocked how long it took, but it wasn't Etrade's fault!
It is the exchange that is responsible for executions.
This is simply what happens when the stock market trades like a penny stock and that is what it has been doing now all this month.
Let me explain what I mean.
Look at this five minute candlestick chart for the S&P 500.
Now yesterday the S&P 500 and DOW all gapped up in the morning and then fell all day after lunchtime into the close.
People who saw the gap up thought this could be the start of a massive rally that everyone on CNBC keeps predicting, but instead the stock market fizzled out to fool people.
What is funny is that the same exact thing happened on August 15, 2016 so it should have been no surprise.
This is the type of the thing you see happen in thinly traded penny stocks.
And so is what the market did on Monday, August the 22nd.
If you can notice in the chart the S&P 500 went on some straight up and down swings throughout that day in the matter of minutes.
There was no news driving this action.
In a normal market you don't really see this.
It is the type of thing though that you do see in a thinly traded penny stock.
That is what the stock market is trading like now and has been trading like since the start of this month.
The reason why is that all the trading volume is gone.
Last week saw the lightest volume day for the the Nasdaq 100 since the half-day trading day before last Thanksgiving.
There no longer are real buyers or sellers really moving the market.
It's all trading robots now.
It's all trading robots now.
That's why it took so long for Etrade to execute my trade even though it was a high volume ETF.
When a penny stock is dead you'll see market makers influence the stock by making buys on support levels and then trying to gap up the stock on mornings to bring buyers in.
If a penny stock has big volume and lots of real traders in it then it will move like any stock will.
But when a penny stock is dead the only way the market makers can really push the stock up is on gap ups, because there just aren't real buyers during the day.
When it is dead money and really a stock job it trades with a lot of block traders going back and forth and gap ups that go nowhere to keep the stock up.
Then eventually enough sellers come in that these type of stock markups no longer can keep the stock high and it just dumps and dumps from then on.
I think that is what we are headed for when it comes to the stock market starting sometime in the next two weeks.
Maybe next week.
It's hard to predict things exactly, but something needs to change or it is going to dump bad this Fall.
Now bulls argue that everyone is just on vacation and after Labor Day people will come back and just buy like crazy.
But we heard that same argument though in August 2000 and in August 2008 and in August of 2015 last year before the flash crash dump.
The big thing happening now is that the real buyers in the stock market have vanished.
I am talking corporate stock buy back programs.
They have been paired back and with them gone the stock market is now very brittle in my opinion.
So that's my view.
We will see if the bulls are right or if bears are right when this resolves.
At the moment it is all trading robots.
This month so far whenever the S&P 500 gets to around the 2176 the trading robots kick in and buy and make the market shoot up.
But they do not keep buying.
So the only way the market can keep going up is on a pre-opening futures buy like you saw Tuesday morning and on the 15th, but without really buyers all that does is cause shorts to cover in the morning and then the market sags and goes back down again.
The thing is trading robots buy off support as long as that works.
So if 2176 gets taken out now they will no longer buy there and the market will go lower.
Last August the trading robots just turned off when the S&P 500 went through its 200-day moving average.
A fall through that level is also what caused the flash crash of 2010.
So if we break 2176 the buying robots will come in above or on the 200-day moving average and try again.
If that fails after that watch out!
I just know that NOW is the time that most people need to prepare themselves for a bout of volatility.
I'm doing that with bets against some POS stocks and some market sectors.
Yes I do have long positions too, but I'm operating this year like a hedge fund going long good sectors and ETF's and short others.
Others are doing it by simply betting that a big market move one way or the other is going to come with options plays.
The simplest thing anyone can do though is do some selling to build a cash position to buy things later at a lower level.
This is the time to look at a portfolio and sell stuff you no longer want to own anymore in my opinion.
I have already done that, but almost no else one out there has.
Most people are totally asleep!
That's why Investors Intelligence bullish sentiment levels have registered crazy again.
You want to buy when people are scared and selling stocks and not when everyone is all bulled up because they are all-in so to speak.
CASH is a four letter word for most brokers and investment advisors, but so is GOLD and so is SELL.
The only words they know is BUY and PRAY.
But you gotta think in more than one word and think in combinations like RAISE SOME CASH RESERVES!
There are only two types of people who profit from market dumps and that is those that bet against the stock market and those that have money to buy at lower prices.
If you are fully invested now then you will not have money to buy later when the next market dump comes.
The insiders and CEO of Apple have dumped over 18% of their shares in the past twelve months.
Last week board member Craig Federighi sold $9.8 million dollars worth of stock in one day.
It was almost 1/3 of all of his total Apple shares.
He does that while Cramer pushes the stock and so many people have been holding it for 12 months going nowhere with it.
That's the stock market.
Insiders cash out at highs and stock small fries watch CNBC and buy stocks that were hot 16 months ago and are now dead.
It's all buybacks keeping stocks up, insiders dumping, and people just not knowing what is going on or being too lazy too care.
And we may be at a peak moment for all three of those things right now.
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