I see Cramer’s role as being like that of the hosts of Entertainment Tonight. He’s doing PR for stocks, and like the E.T. hosts is not really an industry power broker. As many have proven, his percentage of successful picks is pretty low, but that doesn’t deny his influence over a certain segment of the investing population.

I personally am more concerned over computer algorithms buying and selling stocks. These bots have the ability, when coupled with individuals stop gaps limits to cause wild swings — sudden drops or sudden swells — in daily share prices, creating trends where none really exists, or at least are not justified. They’re like a rumor with a sledgehammer.

[quote author=“willrob”]
I personally am more concerned over computer algorithms buying and selling stocks. These bots have the ability, when coupled with individuals stop gaps limits to cause wild swings — sudden drops or sudden swells — in daily share prices, creating trends where none really exists, or at least are not justified. They’re like a rumor with a sledgehammer.

It is reported that automatic trading stands for about 30% of total trading activity though I don’t know if such figures can be actually known. I think that the number may be even more, and such algorithms may be competing to outperform each other as in a computer chess game contest.

[quote author=“carbonat”][quote author=“willrob”]
I personally am more concerned over computer algorithms buying and selling stocks. These bots have the ability, when coupled with individuals stop gaps limits to cause wild swings — sudden drops or sudden swells — in daily share prices, creating trends where none really exists, or at least are not justified. They’re like a rumor with a sledgehammer.

It is reported that automatic trading stands for about 30% of total trading activity though I don’t know if such figures can be actually known. I think that the number may be even more, and such algorithms may be competing to outperform each other as in a computer chess game contest.

Dr.Brett recently looked at how Large funds disguise their large trades with software breaking them down into small trades. He looked at our favorite stock and based on his small study concluded that about 2/3 of trades in the first hour one day where large instutiional trades “disguised” as small trades by program trading. 

Link HERE

[quote author=“mtdoc”]
Dr.Brett recently looked at how Large funds disguise their large trades with software breaking them down into small trades. He looked at our favorite stock and based on his small study concluded that about 2/3 of trades in the first hour one day where large instutiional trades “disguised” as small trades by program trading. 

Link HERE

According to that, small/retail traders account for half the institutional trading volume (1/3 versus 2/3), so if we assume that institutions somehow manage to all trade in the same direction (as Crammer assured that at least Hedges do) it means that each $1 average gain for institutions implies $2 average loss for retailers. 

[quote author=“carbonat”][quote author=“willrob”]
I personally am more concerned over computer algorithms buying and selling stocks. These bots have the ability, when coupled with individuals stop gaps limits to cause wild swings — sudden drops or sudden swells — in daily share prices, creating trends where none really exists, or at least are not justified. They’re like a rumor with a sledgehammer.

It is reported that automatic trading stands for about 30% of total trading activity though I don’t know if such figures can be actually known. I think that the number may be even more, and such algorithms may be competing to outperform each other as in a computer chess game contest.

I think its 55% actually

Of course, the converse is also true.  Thus we should all be thankful that so many of the hedge funds underperform the averages. 

From my observations of how AAPL has moved recently it really strikes me that most of the price movements are occurring either overnight or in the PM (and occasionally AH). During the regular trading hours the price may move initially, but then it tends to stay within a certain range, maybe trending up or down a little.

So what does this say to me? It says that when trading volumes are low the price is being put where the big boys want it. They don’t have to use much firepower to do that. Then when herd has panicked or piled in the big boys use program trading to move huge amounts of stock with little price movement.

The recent iPod event was a classic. I just watched it and thought it was great. However, the sell-the-news crowd sold the news, the big boys gave it a bit of a push, then proceeded to take the stock way lower than it should have gone while the tabloid financial media tried to explain this as iPhone early adopters as being annoyed and iPhone sales being poor. This torrent of nonsense only served to continue the impetus downwards.

Let’s get this straight. The big boys are not selling their AAPL. They are buying more at retail investors’ expense, at lower prices. If you watch the event you will see what a fantastic iPod line-up Apple has in place just prior to holiday season. Why would they be dumping the stock now?

You’ve nailed Wheeles.  I made this note in the intraday on Friday…

Posted: Fri Sep 07, 2007 2:38 pm —

Ponder this. It takes a lot less to bring the PPS down in PM and AH. Most of today’s drop was accomplished in PM. If the big shorts are already all in, why not sit back and use minimal funds to manipulate gap-downs. Are there any protective measures or laws in this regard?
It may be why we have not seen any real bear firepower during todays session.

I knew something was odd, but came to the wrong conclusion.  Your analysis makes perfect sense. 

I’ll go one step further. Have you ever noticed how someone will stick a big order out there on the Level II screen a few cents above or below the market? These guys have no intention of actually moving that amount of stock. What they are trying to do is make eager retail traders jump in front of them and do the dirty work for them.

For example: AAPL is around 139.80 and moving up towards 140. Suddenly a big order of 40K to sell at 140 appears on Level II. This may start to get nibbled at, but very quickly someone jumps in front with an order to sell at 139.99 because they fear that their original order to sell at 140.20 won’t get executed. The guy with the big order may only get 1k of it executed, while 10k of other people’s stock is sold just below 140 as a reaction to seeing that large order out there.

Now what happens if nobody jumps in front and say 3k of the 40k gets hit? The remaining 37k suddenly gets cancelled and moved a bit higher to try again.

That 40k order may end up influencing other traders to sell several times more stock than 40k at that level and effectively providing far stiffer resistance or support than if 400 lots of 100 size were traded at that level.

I’ve seen this tactic used to drive AAPL both up and down. Level II screens are touted as giving people the ability to see what’s out there in the market, but it’s also used to manipulate prices.

If I want to shift a large lot size, I will often put it on an ECN and hide the size as 100. If it’s large and not disguised, then someone will jump in front of my order and I’m less likely to have it executed completely.

[quote author=“wheeles”]For example: AAPL is around 139.80 and moving up towards 140. Suddenly a big order of 40K to sell at 140 appears on Level II. This may start to get nibbled at, but very quickly someone jumps in front with an order to sell at 139.99 because they fear that their original order to sell at 140.20 won’t get executed. The guy with the big order may only get 1k of it executed, while 10k of other people’s stock is sold just below 140 as a reaction to seeing that large order out there.

From what I understand this is why level II quotes have not been a usefull tool for daytraders for quite some time. It’s just a big poker game - with bluffs and head fakes.

FWIW I don’t think it is just the hedgies who are using program trading to move size and to do so without moving price much.  Mutual funds and the large brokerages do the same.  Bill Gates is selling thousands of shares of MSFT every day - I doubt his broker is puting those trades out in 5K blocks

[quote author=“mtdoc”]Bill Gates is selling thousands of shares of MSFT every day

From where do you know that? 

Or do you presume the guy is smarter than we could think?

Or is it just pocket change?

[quote author=“aaplcat”][quote author=“mtdoc”]Bill Gates is selling thousands of shares of MSFT every day

From where do you know that? 

Or do you presume the guy is smarter than we could think?

Or is it just pocket change?

Yes he does, and he has been doing for many years. I read that somewhere. He apparently uses that money (or part of it) for funding a charitable foundation that he shares with his spouse. He stated some time ago that he has more money than what he needs for his life (or something to that respect)