Charts I’m Watching: Aug 15, 2014

The futures ramp overnight provided a gap open for SPX, so they’re now trying to backtest the .618/SMA50 without killing the upward momentum.  Closing the gap would take us down to 1955.23.  And keep an eye on the 10-yr, which just tagged 2.38%.

2014-08-15-SPX 15 0644

FWIW, VIX is tracing out both a megaphone and a falling wedge that suggest a move higher (lower in stocks.)

2014-08-15-VIX 60 0712


Bit of an understatement about the megaphone…

2014-08-15-VIX 60 EOD

Solid breakout, which was — of course — monkey-hammered into submission when SPX tagged its .618 retrace/SMA100 on the 60-min chart.

2014-08-15-SPX 60 EOD CU

It was a pretty wicked departure from the channel to have climbed right back in as though nothing had happened.  Even managed to close flat on the day.

2014-08-15-SPX 60 EOD


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For anyone who missed it, Nanex (reprinted with additional commentary by Zerohedge) published an explanation of the quote stuffing strategy being employed by Citadel — a $142 billion hedge fund that’s closely linked to the Fed — to manipulate prices.  Per NASDAQ, which sanctioned Citadel in June (as did FINRA):

We discussed quote stuffing just a few days ago [see: How Algos are Killing off Traders.]  My description was a little off: “hundreds or even thousands of orders are entered and cancelled within seconds in order to influence price direction.”  According to Nanex’s research, Citadel was placing upwards of 25,000 orders per second with, as NASDAQ confirms, “few or no executions.”

The large red dots below are the instances for which Citadel got its wrist slapped. Each of the dots below represents an instance of quote stuffing to the tune of 6,000+ quotes per second — meaning orders were “live” for 1.6 millionths of a second.  According to Nanex, there were millions of other instances that were somewhat less egregious.

Screen Shot 2014-08-15 at 6.33.05 PM

This article, coincidentally, comes on the heels of a conversation I had with a quant who confirms that certain hedge funds are clearly pursuing predatory strategies — those that exploit traders’ expectations regarding traditional market analysis tools such as chart patterns, harmonics, moving averages, hell — even, the effect (or lack thereof) of news.  My hedge fund’s broker confirms that many funds are having a very difficult time trading these markets, and losses/redemptions are on the rise.

I’m getting a clearer sense of why the chart patterns, harmonics and technical analysis has been so spotty the past year — after several years of very effective guidance.  It angers me that the regulators have allowed the integrity of the markets to erode so badly.  Turns out that Citadel is the first and only firm to be fined for running a quote stuffing strategy — quite shocking, given its prevalence.

If you’re a trader, pass the word.

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