Twitter Legalizes Front-Running in Stocks
A fine line is toed in the social media sphere.
As we chew through August, there are two ways to view this tape.
The first is a familiar lens, the uptrend that has been in play since last November; while we had a false breakdown in June, the bulls walked the line and made some Johnny Cash. The second is a snapshot of the prior month, which is sideways slither apropos of a summer slowdown in both volume and action.
The bulls, of course, will argue that the market is working off the overbought condition as a function of time rather than price; the bears will offer that while bottoms are (price) points and tops are processes (they take time -- and price -- to permeate the prevailing mindset).
What we can agree on, at least thus far this year, is that the bulls have answered each opening bell with a moxie reminiscent of Robert DeNiro in Raging Bull.
This seasonal stretch was supposed to be a time when the tape is vulnerable. While that could still prove true -- the greatest trick the bears ever pulled was convincing the world they don't exist -- the market acts like it wants to chew through the summer dew and enter the autumn where, absent an exogenous shock, the Street will shift its attention to year-end performance anxiety.
I've made an effort not to over-trade these last few weeks of summer. I have a few shekels sitting on the snake eyes and while that's more gambling than trading, it has defined risk. There was a time in my career that I would be compelled to take risk for the sake of risk, each and every session, but I have no such stress now. I've got plenty on my plate and proactive patience is our friend.
Of course, the fits and starts continue on the corner of Wall and Broad -- knee-jerk reaction to economic numbers, fleeting concerns over interest rates, passing observance of overseas news; all the while, HFT (high frequency trading) is pushing prices as part of the New World Investing Order, or The System Formerly Known as Capitalism.
That's not sour grapes; it's an observation as to what is dominating the current financial landscape, which brings us to today's topic.
Ducking in and out of meetings yesterday afternoon, I blinked twice when I saw the Apple (NASDAQ:AAPL) "news" that Carl Icahn bought a large position in the stock -- and then took to Twitter to "talk it up."
The SEC ruled that social media is an acceptable medium for company announcements in April 2013; still, yesterday's events felt a world away from when the SEC warned Netflix (NASDAQ:NFLX) CEO Reed Hastings about posting his prognostications on Facebook (NASDAQ:FB) last December.
Is social media, and the ways in which we communicate, moving that fast? Evidently, the answer is a resounding yes.
To be sure, other high profile investors have posited their positioning on Twitter (Bill Gross at PIMCO comes to mind), but at what point have we jumped the proverbial shark?
With HFT to the left of us, social media disclosures to the right, the investing process is morphing at warp speed. As Josh Brown eloquently observed yesterday -- on Twitter, of course -- "Apple adds $20 billion in market cap, or Chipolte (NYSE:CMG) + Under Armor (NYSE:UA), on a pair of tweets from Carl Icahn. Baller."
I won't take the other side of that statement -- Carl Icahn is a baller -- but we've seemingly entered into a new realm of the investing landscape, a social sphere situated somewhere between "Pump & Dump" and "Post & Boast." Mr. Icahn's 52,000+ Twitter followers got a gift -- or at least a first-mover advantage -- as the rest of the global financial marketplace, many of whom are not on Twitter, were left to play catch-up
And you wonder why mainstream America thinks they're at a disadvantage.
I have no horse in the Apple race; I had a level I was looking at, it never got there, and my greatest cost was one of opportunity. If nothing else, however, yesterday's sequence served to fortify the frustration felt by investors who feel the investing process is unnatural -- and yes, in the words of Stan Druckenmiller, "rigged."
- Per the opening paragraph, here are the two charts we spoke of: the November trend- ine and the summer slither:
- It's amazing that the financials are poised to retake the top weighting in the S&P (INDEXSP:.INX); what a long strange trip it's been. And yes, I'm talking about a round trip if there ever was a round trip!
- Facebook is back below the IPO price; we figured there would be some supply up there as those who bought the IPO look to take a push (vs. the 50% haircut there once was).
We touched on the VXO (INDEXCBOE:VXO) last week; when that puppy has pulled back to a 10-handle, it's been a decent tell.
Mohamed El-Erian was on CNBC yesterday offering that the effectiveness of central bank actions is only as viable as the credibility of those leading central banks.
Reminds me of The Credit Card in 2007, when we offered that "Credit of a different breed -- that of credibility -- will emerge as the issue at hand for markets at large."
Psychology is amorphous, but it remains the single most important metric, in my view.
Lots of positive headlines in Europe (as it officially exits its longest recession in history). Interesting to note that overseas bourses are flattish; markets are leading indicators, and prices are always best near a top (and worst near a bottom).
It's feeling more and more like 2003, at least in terms of the price action. When I look back at where I was and how I felt 10 years ago, it was a much different place; and I thank my wife and kids every day for the journey we now share.
The last year-plus has been a cumulative emotional drag -- emergency heart surgery, hip replacement and a whole lot more -- and while we strive to separate work and life, that is often easier said than done. Not venting (see the bullet above); just communicating.
If I summed up my thoughts on the markets of late, "frustrating," "synthetic," and "dangerous" would be three of the words that would slip out of my mouth. Perhaps if I closed my eyes and held all the exposure I bought in early 2009, I would be singing a different tune, but I didn't, so I can't (as a trader, that's not in my DNA). Either way, it would appear that 23 years of market experience has hindered my perspective as we navigate these historically uncharted waters.
- I will say this: My market "feel," like seasons and moods -- but no longer business cycles -- is cyclical, so I'm not too worried about stepping back into the groove. Just thinking out loud, for if I'm feeling this way, I imagine that many others are as well.
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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