I have a question for you, it’s about the all-time biggest Dow Jones Industrial Average up-day in history.
You know, that 1086.25-point, 5% rocket ride up we all witnessed on Wednesday.
The question is: Do you think on December 26 that traders and investors woke up, got on their computers, called their brokers, and started buying stocks like it was a day-after-Christmas sale at the mall?
Before you answer that question, let me remind you. On the day before Christmas, the Dow Jones fell 653.17 points, hammering the average down to a new 52-week low.
So, I ask you again – this time your answer counts – were investors and traders and retail customers and retirees buying up beaten-down stocks on Wednesday, levitating all the major averages?
The question then should be: Who the heck was buying on Wednesday like there was no tomorrow?
You know the answer to that.
But I’m going to tell you the answer anyway.
That’s right, it was the machines.
High-frequency trading bots (as in robots) started the action after the market opened higher, then fell back to flat. That’s when they saw a vacuum above and started firing down bids to the exchanges.
They weren’t buying then. They were just building up bids right below where stocks were trading. Other bots saw those bids building and figured mathematically that there were increasing bids coming in and there were no offers to sell stocks.
In that lull, for that short time when the market fell back to flat in the morning, the bait was set.
Then they started taking whatever offers were there at exchanges for all the hot stocks that had been beaten down and all the stocks that looked like they were cheap after falling out of bed since October.
After HFT bots started the ball rolling, the algos (algorithms) kicked in, the program trading bots kicked in, and some of the risk parity bots kicked in.
There were no mom-and-pop retail investors calling their brokers.
There were no do-it-yourselfers sitting at their computers, trying to buy bargain stocks.
There were no millennials on their smartphones, firing off buy orders.
There were no passive investors rebalancing their portfolios by buying the dip that looked like it might be over.
There were no retirees, averaging down in their IRAs or other retirement accounts.
It was machines – bots running the asylum.
The New Normal
Is this sort of volatility – up and, more importantly, down – new?
Are these big moves – intraday moves of 500 or even 1,000 points – unusual?
Not anymore. It’s how the markets are structured now. It’s what the U.S. Securities and Exchange Commission has let happen to America’s capital markets.
You only have to go back to Monday, February 5 of this year, when the Dow dropped 1,175 points, or 4.6%.
Sure, the markets recovered, and the Volatility Index (the VIX), calmed back down. In fact, they calmed down to the point where in very early October stocks made another new record all-time high.
But only a week later, on October 10, the Dow fell more than 800 points, led down by tech stocks.
Yeah, I’m talking about those darling FAANG stocks: Facebook Inc. (NasdaqGS:FB), Amazon.com Inc. (NasdaqGS:AMZN), Apple Inc. (NasdaqGS:AAPL), Netflix Inc. (NasdaqGS:NFLX), and Google parent company Alphabet Inc. Their volatility measures spiked starting right then and there.
Amazon fell 6.2%. Netflix fell 8.4% that day. It was the most volatile October in a decade.
On the Wednesday after Christmas, Amazon rose 9.45%. Netflix rose 8.46%.
It’s crazy. The markets have been hijacked by crazies.
Investor confidence in American capital markets is rapidly eroding. If it evaporates altogether, there won’t be any capital market means for average Americans to build wealth.
Treasury Secretary Steven Mnuchin was right last week when he said, “In my opinion, market structure has led to a lot more volatility. Part of this is a combination of the market presence of high-frequency traders combined with the Volcker rule.”
I said it the other day, I’m saying it now, and I’ll keep shouting it: The markets have been corrupted, and they need to be cleaned up, fixed, and made safe again for all Americans to invest in.
For their future – and for the country’s future.
Until that cleanup happens, we’re looking at major market volatility.
And I’m not going to lie to you. It could get worse in 2019.
But there’s always a way to profit – even in market conditions like we’re facing right now.
In fact, volatility can heighten your chances to profit.
My colleague Keith Fitz-Gerald is showing folks just like you how to grab 135%, 205%, 250%, even 400% gains – all while the S&P 500 jumps 0.26%, 0.17%. And they’re doing the same thing when it plummets 1%, 2%, or more.
Now imagine what Keith’s showing them with the big swings we’ve seen over the past few days.