February 9, 2015
Weekly Market Outlook
By Keith Schneider
This week the broadest measure of the US stock market, the S&P 500 index ended basically flat for the year, reversing the brief five week era of negative bias with an up 3% week. Noteworthy, was the announcement by the CME (Chicago Mercantile Exchange) that it is shutting down its physical trading pits and going fully electronic. Goodbye to open outcry, which some including myself remember as of one of the last bastions of pure capitalism. I was on the floor back in the seventies when chalk and a blackboard were used to update the prices of commodities like potatoes. Open outcry pretty much leveled the playing field.
In yet another Era change, Radio Shack filed for bankruptcy. It’s an ironic end to a company that brought leading technology including personal computers mainstream. Both fell victim to high technology, one instance Radio Shack was replaced by Amazon’s retail technology and in the other humans were replaced by machines, an obvious harbinger of the future.
It is great to study the history of the financial markets, but I highlight this event as it has significant implications to the investor and trader. Besides being the end of a 150 year history, humans have been replaced by algo’s and HFT machines. Getting the best execution today requires other skills such that rocket scientists possess along with a deep understanding of computer networks.
When playing the markets, one best understand his edge. One thing is for sure, the days of scalping the markets for ticks while trading from your computer at home is not going to be a successful endeavor. Even the pros on the floor can’t trade against the algo’s. In the past it was possible for those truly talented, but those days are gone. The key here is you don’t have to be victimized by the markets trying to outrun machines that are just plain faster, but you can outsmart them if you change your frequency.
Reversing 2015 trends, Stocks and Oil rallied sharply, Gold got smoked and US rates rose. Speaking of watching the market on the right frequency, the equity markets paused right on the upper bounds of its 6 month calendar range, poised for something big.
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