More Robot Dancing and Flash Crashing

Well, it happened again. Late yesterday, at 4:57pm, it appears that some type of healthcare stock basket was executed at bizarrely nonsensical prices on NASDAQ. Accordingly, about 50 minutes later, NASDAQ made a decision to cancel all trades that were 30% or more away from the consolidated print prior to the error on NASDAQ. What trades took place on other exchanges, and how are those exchanges handling the situation? After NASDAQ’s trade cancellation announcement, Direct Edge and NYSE/ARCA followed suit.

What is apparent is, just like last Monday, where 80 stocks flash-crashed, this is treated as a multi-security event. As a multi-security event, 30% is the safety net; not 5% or 10%. If you happen to be trading a stock when the market is taken over by a robot, you had better be using strategies (be they algorithmic strategies, or specific ECN/exchange pegging strategies) with limits. And if you do happen to get ripped to your limit, be it 5% away or 29.9% away, you can blame HFT robots, and especially the exchanges that all trip over backward to cater to their needs, safety of the market be damned. It is clear that using the traditional STOP LOSS type orders that investors have used for a hundred years WILL NOT PROTECT YOU. In fact, those orders are increasingly looking like they can harm you. Now we are not telling you how to trade, or how to make money, or how not to lose money; instead we are telling you that you have no referee, no exchange, no regulator who has your back. None. You must know all of the insanely complex rules and workings or our Franken-Market, and you alone must be responsible for what happens when you are in this casino.

These are the securities, their reference prices, and the price above which trades were cancelled:

CE Symbol Trade Date Reference Price Breaking at or greater than
ABT 5/2/11 $52.6496 $68.4445
AET 5/2/11 $42.0700 $54.6910
BAX 5/2/11 $57.7174 $75.0326
BMY 5/2/11 $28.4807 $37.0249
BSX 5/2/11 $7.7200 $10.0360
CAH 5/2/11 $44.1624 $57.4111
CELG 5/2/11 $59.9067 $77.8787
COV 5/2/11 $55.5175 $72.1728
DVA 5/2/11 $89.1675 $115.9178
FRX 5/2/11 $34.8663 $45.3262
GILD 5/2/11 $40.4464 $52.5803
JNJ 5/2/11 $66.1103 $85.9434
LH 5/2/11 $97.7500 $127.0750
LLY 5/2/11 $37.3100 $48.5030
MCK 5/2/11 $83.1049 $108.0364
MDT 5/2/11 $42.3581 $55.0655
MHS 5/2/11 $60.2000 $78.2600
MRK 5/2/11 $36.2500 $47.1250
MYL 5/2/11 $24.9202 $32.3963
PFE 5/2/11 $21.1000 $27.4300
STJ 5/2/11 $54.0765 $70.2995
SYK 5/2/11 $59.2400 $77.0120
UNH 5/2/11 $49.9773 $64.9705
VAR 5/2/11 $70.4675 $91.6078
WLP 5/2/11 $77.3135 $100.5076
ZMH 5/2/11 $65.8875 $85.6538

 

Forget May 6th, what do broken trades, as well as 30% price errors do to investor confidence in terms of being invested in the stock market? Being victim to one robot hijacking event, and suffering a 29.9% loss can be devastating, as well as pointless. Do you know how many years of fixed income investing at Bernanke-rates it would take to get back to one’s high-water mark after such a hijacking? I am 45 years old. It would take me until I am 75 years old.

Well, enjoy your week. It sure as heck started out with good news late Sunday night, and again, we are proud to be American. God bless Special Ops. God bless our armed forces. I would like to include Craig Cumming’s (Cantor Fitzgerald) musings this morning, so please enjoy reading it as I did.

Joy in Mudville .. The news of bin Laden’s death has brought reactions that range from relief to party-time. (Personally,  I think I fit somewhere in between).  The one thing I don’t like is some of the press coverage.  They keep looking for politicized quotes out of the Bush Administration.  The reports seem somehow surprised to hear Bush and Karl Rove praise Obama for this ..  Listen,  there has been a group of CIA smart guys looking for bin Laden for almost 10 years.  Some of them are the same smart guys that worked for Bush.  They deserve credit for finding bin laden and Obama deserves credit for ordering an attack operation inside a sovereign nation.  That took backbone.  If bin Laden hadn’t been there it would have been a giant Black eye for the USA. So,  BACK OFF press vipers.  This is a win for EVERYONE. ..  While Im off on a press rant .. I almost got sick when I read a report about Brian Williams landing at Heathrow to cover the Royal Wedding.. but then immediately returning to cover the storms in the South.  The article said the other anchors and networks were “furious” and “fuming” that they would not be able to get back to NY to cover the storms like Williams.  WhatGET OVER YOURSELVES .. You are puppets that read tele-prompters.  You talk about the stories, you are NOT the story.  You can sit in NY at your desk and cover any story in the world.  It doesn’t make it any better that you’re there instead of just having the camera man and whatever local reporter is available.  NO ONE CARES!!!..  (Unless, of course you are THE Anchorman.  Ron Burgundy rules!)  .. In other news, Norman Mailers Brooklyn home is for sale… 6 Wives, Norman?   Are you kidding?  An even bigger “ ARE YOU KIDDING”  to Renren ( the Chinese Facebook) .. Coming public this week at 67 times sales?  Really?  Is this 1997 all over again?

Where we left off 4:00pm EST:

INDU              12,807.36                                -3.18

SPX                 1,361.22                                  -2.39

CCMP             2,64.08                                    -9.46

Futures now at 7:00 am EST:

DJA                             -51 

SPA                             -6.00

NDA                           -8.75

Key Data out today:

 

10:00:              Factory Orders

 

Since the prior close, some key stories:

 

–       Commodities and stocks fall as Dollar gains.

–       NYSE-Deutsche Bourse Deal Gains so CEO Can Close Deal (Bloomberg): Excellent Bloomberg Recap

–        RenRen seeks public IPO at twice Facebook’s Valuation (NASDAQ and NYSE fight over who will list it! Ok kidding… I threw that part in there)

–       Blankfein may lead Goldman for 2 more years, as long as he stays away from the limelight, as he has been!

–       NASDAQ, NYSE, DirectEdge cancel trades in healthcare stocks.

–       Gold Flash Crashed briefly yesterday afternoon. Know this. All markets are interconnected via futures, ETF’s and other derivatives. No Hiding. An error in one place can ripple to all places.

–       Geithner says US has until 8/2/11 to reach debt ceiling.

–       UK PMI shrunk.

–       India increases rates.

–       Russian Manufacturing falls most since 2008.

–       Stocks stay high despite Macro economy showing weakness.

 

Earnings:

 

Pre-market:  ADM, AGL, ANR, AVP, CHL, CHTR, CLX, CTSH, DUK, EMR, FE, FIS, FWLT, HSIC, MA, MRO, MTOR, MYL, NI, PCS, PFE, SE, SMG, SU, TEN, TSU, WEC

After the Close: CBS, CMCSA, DOLE, GNW, HRS, INT, LVS, OKE, OKS, UNM, XL

Significant Movers This Morning:

SYKE +12%, CGNX +12%, AEIS +10%, HLF +6.7%, VVUS +5.7%, HIG +3.5%, LOCM -12.5%, PRXL -19%, NETL -5%, MG -4%, TXRH -3.7%, LPSN -5.1%, CHK -2%