Interesting Data

First, name that market...


These are all major indices, they're all daily charts and their all making new highs...

 Chart 1

Chart 2

Chart 3

Chart 4

You probably recognize at least a few, by the way, looking back at historical markets is a great way to give yourself current perspective, especially if you are very close to the market as in watching or working in it all day, every day.

OK, Chart 1 was the end of the ROARING 20's and the VERY top of the Dow Jones Industrials in 1929.

Chart 2 was one of the biggest stock bubbles blown in my time, that's the Tech bubble at it's peak in the NASDAQ 100.

Chart 3 is a period I remember well, I was doing a lot of warning, CNBC was putting on authors of books like "Dow 20,000", that's the top of the 2007 SPX.

Chart 4 is the SPX right now, everyone of them was making new highs nearly every week or even day, then the bottom fell out. There are a lot of clues, there's a lot of data if you look for it, if you believe it, but when someone is on a roll at the casino, once they lose a bit of money, it's really hard to walk away, they want to get back to those previous adrenaline highs of an hour before and an hour later they return to their room depressed and broke.

So, Not all new highs are alike. We have data showing us that this one is not alike. In fact, we've never had a scenario like this in the world markets before so we are walking forward each day in to what will be living history studies a hundred years from now like we look at 1929.

What happened next for each of these?

 Chart 1, the Dow Industrials. Many may not pick it out, but recall what I just said about a gambler who was on a bender and started to lose money, they don't walk away, they refuse to believe.

Look back at the roaring 20's and imagine making those kinds of gains, the first break in the 1929 Dow, while sharp, was like a drop in the bucket compared to what they had made on the upside.

In fact, right in to 1930 we get a bear market rally or "Counter Trend" rally that retraces about 50% and goes on for about 6 months, at the time, I bet that seemed like a believable recovery and good times were here again, the difference is smart money knows they aren't while dumb money piles back in and this is why bear market rallies are so strong because they have to be believable.

So the Dow essentially went from about $65 in 1923 to almost $390 in 1929, by 1932 the Dow was at $45.

 The NASDAQ Tech bubble I remember well, I learned some good lessons and became very comfortable shorting stocks during this period, believe it or not, around the same time Home-Builders were under massive accumulation near their lows, who would have thought housing would lead the next bull market? Someone knew years before the housing bubble started and many of these stocks saw 2000-3000% gains.

This is the 2007 SPX and this was a crazy time, 2009 was the first time I became intimately familiar with the PPT as myself and my Russian trader friend many of you old timers know, David DT, were calling PPT intervention to within 10 minutes of them doing so. All that had to happen in 2009 was the market had to threaten to make a new low after this point and the PPT stepped right in, when you are posting this 10 minutes before it happens, you know them pretty well.

What's the overriding theme in all of these charts? Price-wise, NO NOTICE. There were some things you could have paid attention to like the increased volatility in the 1929 Dow, the 2000 NASDAQ and to an extent, the 2007 SPX. Breadth however was bad and believe it or not, I've checked out all of these with 3C and it was telling the story long before the break, it gave plenty of warning just like it did with AAPL's top last year, Oil's 2008 top, Gold's 2011 top, etc.

In each of the 3 last examples when 3C was warning and these markets made new highs, the other theme was total and utter denial. Gold bugs were maybe worse than AAPL longs, hard to tell, oil wasn't as hardcore, but still no one wanted to believe that.

As I was thinking about last week's Chorus from 3 LARGE Private Equity Funds all saying, "This is a time to sell" and as I said earlier, "who is retail going to sell to?" because smart money who handed their shares off to dumb money sure aren't going to be the buyers.not for a long time,  I came across this information.

Last week we got out 1 Tweet sentiment update that put dumb money sentiment altogether, a fellow who had EVERYTHING long the market and was looking for extra money to throw in there. We saw the chart's conveniently released last week from Bank of America showing that retail has been a huge net buyer all year, but especially July, while pros were doing the exact opposite. We're seeing signs of it being harder and harder to ramp the market with currency crosses or even arbitrage assets as shown tonight and last week. So this data is interesting.

From Nanex (who are incredible, like forensic market investigators)...

"On August 5, 2013, SPY recorded the lowest non-holiday volume since February 16, 2007. August 5th also turned in a record high quote/trade ratio, as High Frequency Quote Spam persists. 

Charts below show daily counts of quotes and shares during regular trading hours in SPY from January 3, 2005 through August 5, 2013.  "

1. SPY Trading Volume (millions of shares).

2. SPY Quote Counts (millions). No record low.

3. SPY - Quotes Per Trade - New All Time Record.

4. SPY - Quotes Per 100 Shares - This ratio leaps to record highs.

 HFT's can trade incredible amounts or they can stuff an incredible number of quotes, what you see above is one of many ways this is a market like none we have seen before, THIS IS A NEW FORM OF CHURNING TO THE EXTREME.

Churning is the handing off of shares from smart money to dumb money, it typically marks a top, there's often very little movement from open to close, but can have some significant intraday movement.

If you've ever seen churning before at a market top, you'll understand how extreme this is and how HFT's have forever changed the landscape of the market.

***Old time day traders use to try to front run a specialist or market maker and "scalp", typically pennies, but at huge leverage done over and over each day, a living could be made by some day traders.

Then High Frequency Trading came along... Around 2000, HFT's took about 2 seconds to execute a trade, then it went to milliseconds and by 2010 HFT's were trading in micro-seconds. Essentially HFT's routinely can trade or put out thousands of quotes / trades per second, but it appears they can go a lot faster, up to MILLIONS per second.

While there are more than a dozen different popular HFT trading styles, the ones that front run market makers are the most dangerous. In a bull market the reduced bid/ask provided by HFTs benefits most investors as they get a better fill, but, unlike true market makers and specialists who have a legal obligation to make a market and accept any trade that can't be matched as long as it is at market and not limit, HFT'S ARE NOT BOUND BY THIS LAW. 

In a down turn, HFTs can be running the market down faster than market makers/specialist can respond to market trades, in other words the huge liquidity HFTs provide, can be pulled in an instant or used to push the market lower and the traditional role of a market maker, TO KEEP AN ORDERLY MARKET, is now out the window.

But there's more...
We know institutional money is out, we've seen it in 3C, last week we saw it in tables from BOA and heard it directly from firms, but retail is in full on. The US retail trader/investor has now rotated in to stocks, the 3rd most popular long asset in the world,  by the most since February of 2000, go back and look at the NASDAQ around Feb. of 2000, you might not be surprised.

From JPM...

What about retail investors? Retail investors have embraced the Great Rotation over the past two months.

Smells like Blood in the water... However, the fun part and where we have a fantastic edge is sniffing out the counter trend moves, traders will love these zippy rides up and down on a swing basis or longer.