Daily Investment Interpretations

October 5, 2010

2010-10-5 (Tuesday Night):  The markets climbed around 2% today: S&P rallies sharply. The NASDAQ Composite hopped  55.31 points (2.36%) to 2,399.83. The Dow advanced 193.45 points (1.6%) to close  at 10,944.72, and the S&P 500 collected 23.72 points (2.09%) to end at 1,160.75. Oil rose to  $82.61 a barrel, while Gold ended at $1,341. The VIX ended the day at 21.71.
    My investment service took a halfway position in the U. S. markets today because the markets are already up quite a bit. I think TopStock Portfolios wants to wait until the markets confirm their upward course before fully committing to them.
    Trade at your own risk  David Weidner comments on a report released just today by the Commodity Futures Trading Commission concluding that the "flash crash" was triggered by a flood of 75,000 sell contracts from Waddell & Reed Financial Inc., in Overland Park, Kansas. "What it took the regulators so long to find out, was what anyone who engages regularly in the markets already knew: Retail and traditional buy-and-hold investors have been squeezed out by computer systems modeling other computer models and algorithms that have replaced traditional investing strategies executed by fallible humans.
    "The HFTs defend their business by claiming to add liquidity to the marketplace. They do, but only when it suits them.
They abandoned the market on May 6 when conditions weren’t going their way. That wasn’t an option for the NYSE specialists and market makers a generation ago. They went down with the ship. That role was the price they paid so we would forgive them of their other sins."
    "Given this state of affairs, the SEC and the CFTC need to kill, or at least tame, the monster we have created. So far, the regulators’ response to the computer problem has been more of the same: circuit breakers, more monitoring. Read report on CFTC’s Gensler’s remarks on ‘flash crash’ remedies. That’s not enough. Humans have to get back in control. Rule makers don’t have to become Luddites, but they do need to impose some responsibility on the people who use computers to make their business. For one, pre-trade screening of some form needs to be instituted so fat fingers — both human and robotic — will get a second look." 
    Michael Ashbaugh writes, S&P rallies sharply.  
    Fed may support more inflation (video)  
      
2010-10-5 (Tuesday Afternoon):  My investment advisory service has just sent a restrained "buy" signal. They're recommending buying the unleveraged S&P 500 ETF "SPY". I've just bought half that amount of 2X-leveraged "SSO". Over a short time interval, these investments should perform the same, although over the long haul, "SSO" may fall behind its daily goal of twice the volatility of "SPY". (I might switch to SPY given more time to think about it.)

2010-10-5
(Tuesday Afternoon)
:  The markets are now up more than 2%. To my surprise, my investment advisory service has warned of a possible "buy" signal this afternoon, but so far, it hasn't materialized. Stay tuned. I'm monitoring the situation every few minutes.

2010-10-5
(Tuesday Morning)
:  The markets are up more than 1½ % this morning on a surprise rate cut by the Japanese government (along with other easing moves). Accompanying this is Fed buys $5.19 billion in Treasurys, indicating that the Fed is actively intervening to shore up the economy. (Note that the government is moving money from one pocket to the other. This may increase the deficit, but it can be repaid when the economy picks up speed.) Also, U.K. double-dip fears ease. But has the market passed us by? The indices are hitting new highs.
    My investment advisory service says "no". The markets are news-driven, and this, too, shall pass. The markets gapped up on opening this morning, and those gaps will have to be filled in. But it is the case that the markets have established new highs this morning.