August 11th, 2010
Is the market rigged as has been discussed in an on-going debate in the commentary section of this blog? When people use the term “rigged” they mean “manipulate fraudulently; to arrange or tamper with the results of something” as defined on Dictionary.com.
The implication is that the stock market is a zero-sum game where every participant is either a winner or a loser with no middle ground. This mistrusting belief on the part of many individual investors is being stoked by the media who tell us that quants, “black boxes”, hedge funds and other forces we don’t know and can’t see are front-running our orders, accounting for 80% of all the volume on the market and accounting for such incredible events as the “flash crash” last May when, according to Wikipedia
“the stocks of eight major companies in the S&P 500 fell to one cent per share for a short time, including Accenture, CenterPoint Energy and Exelon; while other stocks, including Sotheby’s, Apple, and Hewlett-Packard, increased in value to over $100,000 in price.”
All this points to a convenient scapegoat for the market’s volatility and, indirectly, someplace for us to point for our difficulty at making any money (more correctly, our losses). In my opinion, all the problems actually began last October when the sideways movement began.
So are these black forces winning at our expense? Are we unable to make any money because all the black forces are conspiring to take all the individual investors’ money? In “Accidents, Coincidences or Mysteries” of July 27 I included a minute by minute chart of the S&P 500 and wrote
“The day opened with a nice pop that was quickly and summarily disposed of while the rest of the day saw three attempts at crossing above 1116. That may seem like an arbitrary level but we’re no stranger to that number because it’s exactly the same level that the market struggled to climb above several times late last year.”
Today’s action adds to the mystery while it enlightens and illuminates. This time the focus is on the 50-day moving average which today was at 1087.75 with the market nearly touching and bouncing off that line 4 times today (but lost steam at 1094):
Rather than acting like Darth Vader today, it almost felt like those “black boxes” and their algorithmic trading actually came in with their huge buy orders after the market’s horrible open at the 50-dma and actually salvaged the day for us little guys.
So which is it? Are they trying to take our money or are they trying to prop up the market? My guess it’s neither. It’s not about us; they’re trading in whatever way they think will make them money. An clearly moving averages, which are easy to calculate and program can act as a trigger that anyone can use, even the individual investor.
Now that the market for some mysterious reason stay just at the 50-dma today let’s see what happens tomorrow.