This vacillation is the product of:

1. Thin markets (i.e., low liquidity)
2. Algorithmic market making

Here are some facts and observations:

The market has been quite schizophrenic since 2-27-2007 and is still terribly over done. How many months now without a 10% correction? We are in the longest period without one.

Everything’s out of whack for old school thinkers like me – people that make a few trades a day, they won’t even notice.

Take a look at the smooth action in the S&P before 2-27 and then after. The market is extremely thin with average transaction size being 400 shares on the NYSE these days.

Figure 1.0: Pre 2-27-2007

One possible explanation:

What happened on 2-27-2007? They pushed the STOP button pure and simple -the system operators weren’t even supposed to put trading curbs in until the Dow was down 1200 points. The NYSE simply pushed the stop button – a do over – whatever you want to call it. Then they blamed it on a ‘network problem’. Hmmmm.

Figure 2.0: Post 2-27-2007

As far as strategies go, I have many that are working – unfortunately most of them are designed for automation.

JH

We’ll get him to share some of these shortly. In the meantime here’s a strategy-related post about 2-27-2007: