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764 posts
msg #104904
Ignore gmg733
2/10/2012 3:27:53 PM

11,734 posts
msg #104905
Ignore johnpaulca
2/10/2012 3:52:34 PM

Source: larry Levin

There are two types of “vol” in the market: volume and volatility. Both are very low. Actually, one is low and the other is nonexistent. Volatility is nonexistent but volume, somewhat surprisingly, has been increasing.

To say that volatility is absent is an understatement. The market is regularly advancing small amounts that are followed by very long periods if churning. My head trader, Dan O’Brien, has been telling me of a new type of HFT program that may be causing this. His argument is quite convincing because when he shows me when it is active, the market instantly stops moving. This very large program, that Dan calls “The Whale,” trades in such massive size that it can literally stop the market from moving. I am trying to get Dan to write about it for us all soon, perhaps over the weekend.

The early volatility stopped on a dime in the lower rectangle when The Whale program was turned on. It was an hour long period of a mind-numbingly small 6 TICK range. Dan showed me the exact time when The Whale switched off his HFT robot – and the ES immediately popped up to the 1348.00 level. In the higher rectangle, The Whale came back and again the volatility ended. The higher level traded in a 3-point range…for FOUR hours. Yes indeed, there was no volatility.

To be sure, volume is still quite low; however, since the sickeningly low water mark of February 6th, it has been steadily increasing. On that day, volume in the ES was a staggering 29% below its average. Today’s volume, however, was 8% above the average, with a twist.

The twist is something that we haven’t seen in a while: higher volume coupled with net sellers. The net trade showed aggressive sellers over aggressive buyers by the end of the day at -24,630, or -1.41% of the volume. Moreover, the selling volume increased 6 fold in the afternoon rectangle shown above.

This only means that, if it isn’t a one day phenomena, something is changing. The market may be ready to take a breather, which means a drop. The data isn’t extremely strong yet, I’m just pointing out that this has not happened in a long while and the market has indeed been on an extended run. Be careful if you are very long in your portfolio.

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