Spoofing? Layering? Manipulation? Say it Ain't So...

Since the mkts have been relatively quiet of late.....Let's take a quick look at the story of the day.....

Ok….this gets filed under “WTF’……Is someone kidding?” The headlines could not be any clearer:

"Flash Crash Charges are Filed"- wsj

"Mystery Trader Armed with Algorithms Rewrites Flash Crash History" - Bloomberg

"Feds Endanger Space Time Continuum by Arresting Futures Trader in 2015 For Crime Perpetrated in 2010 - dealbreaker (This headline must have be written by a computer - space time continuum- REALLY?)

So yesterday afternoon – the news broke – in fact the mkts WERE RIGGED……I guess Michael Lewis had it right……. A Brit was arrested over his alleged involvement in the US Flash Crash that happened on May 6, 2010. Words like FRAUD, MANIPULATION, SPOOFING, LAYERING all making the story juicy as well as infuriating (to those of us who have been screaming about how technology was being used to subvert the mkts). On top of this - we learned that not only did this guy manipulate the mkts he reaped some $40 mil in profits.....and continued to spoof, layer and manipulate the mkts right up until April 2015.....

Spoofing, Layering…..oh – these are the very specific, in fact scientific terms used by HFT programmers and traders. They are abusive order types leading to abusive trading strategies….. Now by abusive we mean illegal. (I’m just sayin…)

Spoofing and layering are tactics where HFT traders place orders that they never intend on executing, they place them and then cancel them before they are executed to create the false impression of either supply or demand, aiming to trick others into buying or selling a stock at the artificial price. And this is done all anonymously, as these characters hide behind the curtain, hide behind their computers.

You see – in the old days (Yes this needs to be said) – when trading was done out in the open on the floor of the NYSE - You couldn't hide behind a computer...brokers were face to face - You spoke your bids and offers and YOUR WORD WAS YOUR BOND..... You see we signed the book – the book that dated back to 1792 – the book that was initially signed by Peter Anspach, Andrew Barclay, Samuel Beebe, G.N. Bleecker, John Bush, Issac Gomez, Augustine Lawrence, and Benjamin Winthrop to name only a few. When you signed the book - you took an oath - period. The book is really incredible and it can be found in the archives of the iconic exchange building located at 11 Wall St. When you signed the book - you wore the badge and when you wore the badge your honor was on the line.

But today – well, it’s different….there is no more book to sign, there is no ‘my word is my bond’ because there are no more words…..only computers and computers have no conscience and I guess some of the people that use the computers also have no conscience and no honor....…..and so it is….

Navinder Singh Sarao and Nav Sarao Futures Limited PlC will now be names chiseled into the history of time. He will join Raj Rajaratnam (Galleon Group), Bernie Madoff (Madoff & Co), Angelo Mozilo (Country Wide), Bonnie Elizabeth Parker and Clyde Chestnut Barrow (Bonnie & Clyde), John Corzine (MF Global), Dick Fuld (Lehman Brothers) and Stanley O’Neal (Merrill Lynch) – do I need to go on?

Do you remember the event? Do you remember how the mkt plunged 1000 points in 7 mins with no explanation? Do you then remember how Greg Berman – The SEC’s lead HFT investigator blamed the asset management firm of Waddell & Reed? Essentially telling the world that HFT and HFT programming had nothing to do with this event? Well folks – spark up the grill - it looks like someone is about to eat his words… It appears now that this story is about to be ‘re-written’ – in an attempt to clear the air…..OH Boy – I am on the edge of my seat…… Someone call Mary Shapiro!

Could it be true that one person could have manipulated and crashed the US stock mkt by spoofing and layering? Or is it just a statement of how the regulators haven’t a clue about what 21st century computer programmers are capable of. It is laughable that the CFTC and the DOJ think that this guy was OR is the only one ‘spoofing and layering’ – they need their heads examined….and I mean now. So many industry professionals have been raising the red flag, ringing the bell or jumping up and down to make the point – but the SEC chose to turn a blind eye….kind of like how when Harry Markopolis – a forensic accounting and financial fraud investigator pleaded with the SEC to investigate Madoff saying that - Bernard L. Madoff Investment Securities, LLC was nothing more than a massive Ponzi Scheme – they ignored him as well....for 10 yrs I might add.

Yesterday's revelation was possible because of the work of an unknown Whistleblower - someone to be named later - "who brought powerful, original analysis to the CFTC’s attention", said Shayne Stevenson, a Seattle lawyer representing the whistle-blower.

So should this make us all feel a bit more comfortable? Should we rest easy now? Or does this just elevate the whole conversation about how vulnerable our financial mkts are to high speed, HFT, automated computer driven trading that has replaced the very humans that the mkts are supposed to benefit the most? And this is not just a U.S. conversation...this is a global conversation....consider for one minute the havoc and chaos that could result in a coordinated effort to bring down the global financial system - by a bunch of nerds - in fact Sarao said it clearly himself.....as noted in the BB article today.....

"Sarao explained some of his conduct to the CME in a March 2010 e-mail, as “just showing a friend of mine what occurs on the bid side of the market almost 24 hours a day, by the high-frequency geeks.” He then questioned whether CME’s actions regarding his activity meant “the mass manipulation of high frequency nerds is going to end,” according to the FBI affidavit..... About three weeks later, Sarao told his broker that he had just called the CME and told them to “kiss my a-s,” the affidavit said"

Sit back folks – the party has just started……..

Ok....like I said - the mkts continue to churn in a very tight range...volumes remain low ...Stocks tossed and turned and ultimately closed lower yesterday as investors continue to assess earnings - looking for direction.....M&A activity continues to create some excitement in healthcare and biotechnology......helping to stem the tide....and oil comes under pressure as inventories jump and the Saudi's pull out of Yemen.

Yesterday's combination of poor earnings announcements and a drop in crude oil prices pushed the broad market down again - while the Nasdaq managed to gain a bit. It was just another day with the S&P not going anywhere... trading continues to reflect uncertainty about the near-term outlook for the markets following the volatility seen over the past few days while the absence of any major eco data kept some traders on the sidelines ahead of next week's Federal Reserve meeting.

We saw oil inventories jump by 5.5 mil barrels - the 15th week in a row that oil inventories have continued to build - so this naturally put pressure on oil.....causing it to fall by $1.12 a barrel to $55.26 a barrel - the weakness here then taking the energy sector with it causing the broader mkt to pull back.

Look - crude oil prices have rallied nicely in the past couple of weeks and have now hit the top of the Bollinger Band line - representing key resistance. From an intermediate-term perspective oil prices are over extended and are having trouble breaking up thru resistance....so a small pullback should be expected before it challenges resistance again.

News that the Saudi's will end its bombing of the Iranian-backed Houthis Shiite rebels in Yemen was also credited as another reason for the oil weakness. Pictures of the USS Theodore Roosevelt aircraft carrier and the USS Normandy, a guided-missile cruiser - making their way to the region is just enough reason to cause the whole geo-political machine to rev up and cause int'l concern.

This morning - US futures are off 6 pts....trending at 2084....still within the trading band of 2075/2111. Eco data today includes: Mort apps +2.3%, and Existing Home Sales - exp of 5.03 mil......or an increase of 3% over last month....

Earnings will continue to take center stage with names like ABT, BA, KO, MCD, SJM will all report during the day....after the bell we will hear from FB, T, TMK, CCR, EBAY.

The mkt continues to feel a bit tired and a test of support at the 50 dma at 2085......The key here is - will the buyers be there? Unless the news gets really negative - I expect they will be.....

In Europe this morning - mkts are all trading lower on the Greek Angst....Tsipiras is now acting like a fool....in the negotiations with Europe. Threats about war reparations, getting in bed with Vlad or even opening up its borders to ISIS do nothing but destroy any credibility that he might have had....in the end - he can't make a difference because the country is socialist and they won't help themselves. FTSE -0.65%, CAC 40 -0.67%, DAX -1.13%, EUROSTOXX -0.67%, SPAIN -1.13% and ITALY +0.04%.....

Pulled Pork

Pulled Pork – (Seems appropriate, no?)

Thanks to my friend Frankie D for giving me this great recipe. You need a slow cooker for this.
Put into slow cooker:

1 cup of ketchup, 1/2 cup of beer, 1/2 cup of light brown sugar, 1/2 cup of chopped onion, 1/4 cup of red wine vinegar, 1/4 cup of Worcestershire sauce, 1 tbsp Montréal steak seasoning, 1 tsp of garlic powder, 1 tsp cajun seasoning.

Mix ingredients together with a spoon and then add pork butt/shoulder 3-5 pounds is good for sandwiches for 4-6 people with a little left over.

Cook for 8 hours. Remove and shred with a fork. Ladle sauce onto pork. If you want a thicker sauce, mix in some flour.

Enjoy!