Double Dip Countdown: "8"

The surprise was not that GDP got revised down from initial 3.2% and first revised 3% to 2.7%, but that it was no longer consider "unexpected." While the punditry still talks of a "slowdown" and a "muddle-through economy" the broader expectations are coming to grips with the double dip. The main driver of the revision down was weaker than previously estimated PCE (personal consumption), dropping from 3.5% to 3% growth. Inventory was revised upwards a bit, and contributes over 2/3 to the GDP growth, but business spending was reduced from 3.1% to 2.2%. Since inventory rebalancing is expected to drop in Q2, this bodes very poorly for the next report. GDP growth has now dropped in half between Q4 (5.6%) and Q1 (2.7%). 

In comparison, GDP grew between 7-9% for five consecutive quarters after the 1980 double dip recession. GDP grew in the double-digits for four years after the 1932 bottom. 

ECRI dipped closer to the -10% level, which has signaled a recession 100% of the time for the past 42 years, dropping from -5.8% to -6.9%. Lakshman Achuthan, managing director of ECRI, now says a slowdown is inevitable, but found a way to add a dose of optimism:

After falling for six weeks, the uptick in the level of the Weekly Leading Index suggests some tentative stabilization, but the continuing decline in its growth rate to a 56-week low underscores the inevitability of the slowdown

ECRI is now back to the level of Dec 2007, when the recession started. 

 

An interesting debate on CNBC this morning (around when the Brazil-Portugal game sputtered to a 0-0 tie) on Stimulus vs Austerity sputtered out as well but got across the point that this isn't really a policy choice; governments always try to spend their way out of problems until austerity is forced on them. Last night the US Senate abandoned efforts to continue extending benefits to unemployed and cash-strapped State governments. The most relevant impact to the double-dip is that this worsens crumbling State finances. 

Politically, the US may be at the turning point and joining Germany, England and China in pulling back from continued stimulus (although Obama is likely to keep pushing for stimulus until the mid-term elections). It is doubtful the US calls for G20 to stimulate will have much credence. The Fed too seems to be frozen at a time when the money supply is gong the wrong way for a recovery. 

Curiously, consumer confidence rose, and is at its highest since Jan 2008. As you can see from this chart, it remains at a low level. I am constantly amused by people who argue that "restoring confidence" is all that is necessary for a recovery. Confidence is at its highest at the peak (2000, 2007 and I daresay 1929) and at its lowest at bottoms) - the consumer remains a lagging indicator. It is also always argued that as confidence returns, money comes out of mattresses and gets spent; but other than a blip around tax refund time this year, we have been seeing lagging PCE. It may be when government transfers money that appears as a windfall, it gets spent, but hard-earned money tends to be saved or spent more prudently. 

 

More relevant is that corporate profits continue to rise, and significantly profits beyond the banks that are TBTF. This of course supports the Hope Rally, assuming it continues (the report is of Q1 not current profits). Profits are a coincident indicator, and sometimes lagging, as rapid cuts in spending can temporarily boost profits amidst worsening economic conditions. Hence the good news on profits is not inconsistent with a future double-dip. 

 

Instead, the indicators that suggest the double dip are all speaking loudly: housing, unemployment claims, consumer spending. They then get picked up in ECRI and other leading indicators, all of which are dipping. You can pick out green shoots here and there, such as durable orders falling less than expected, but even there we are seeing a dip in the growth of tech and consumer electronics (iPhones and iPads notwithstanding). 

A final discussion out there is whether the yield curve is signaling recession. Mish has been showing this chart as the warning sign. It clearly shows there are no inflationary expectations in the US economy. Instead, it shows what happens when an attempted reflation fails. 

 
Gary North analyzes this, explaining why an inverted yield curve normally signals recession: higher rates out the curve are required to hedge against inflation, but as short term rates are raised to curtail inflation, the curve inverts and a recession follows. In this case, the Fed is holding down short term rates and the fear is of deflation. The obvious failure of central banks to reflate means that in the private market short term rates will rise, leading perversely to a liquidity shortage. Lenders compound this by buying bonds to lock in the longer term rates, driving rates down. Hence, this time around the inverted yield curve is produced by fear: 

• business borrowers fear of inadequate capital, so they pay up in the short end
• lenders fear a recession with falling rates, so they lock in the long end

As a consequence, the CMI indicator which tracks the demand side of the economy, is dropping and signaling contraction. Their explanation of the impact of continued government interventions and gimmicks is priceless:

[I]t has instead, unfolded so far as a mild but persistent kind of contraction, more like a 'walking pneumonia' that keeps things miserable for an extended period of time.

 

Comments

[usdollar]

Five waves down i, and then it Looks like an irregular flat wave c of ii is forming before closing. Midsummer party to go to.

[Mamma Boom Boom]

>Midsummer party to go to.<

What??

Where do you live? In my neighborhood, it just turned summer on Monday.

[Advance Copy of Roger D's 4PM Eastern Time Post]

Just hours away from a collapse. The manipulators hid their selling well. So well that the market actually went up. That's some good hiding. Anyway, Sunday night or Monday morning we collapse. Or, Monday afternoon. Or, Monday late afternoon. Or, Monday night. Or, Tuesday morning.

Asia's 7 nested degrees of 1-2s should lead the way. Or, Asia will follow the US. Or, the Euro will drive the US down. Or, Apple will go to $5/share. Or, the Grand Supercycle will end. Or, Martians will invade Earth.

[Wave Rust]

Woebama in testaronto to turn in his homework, a 20 page paper on finacial regulation reform.

unfornuttlee, his paper is too long, useless and probably lucky if he gets a C-, because he's stupid.

he's never heard of 'more is less' and its antithesis, 'less is more'.

too little to late on the oil spill and too much finreg at the wrong problem.

but Woebama and his economic crown of nails, is still on the right track, according 20% of the people. now thats consumer sentiment.

consumer sentiment always reminds me of the Ag. Dept.'s slaughtered hogs data report. :)

wave rust

[Mamma Boom Boom]

Tom Drake's long term chart of the Dow. Can you say 6000?

http://www.imagebam.com/image/e5e8c585916068

[Michael]

Pretty obvious from the tape action today that there is a "two-sided" program (buy/sell and sell/buy)that is being executed by an equity derivatives desk.

Add that to today's Russell Rebalancing and you have some very interesting "tape" action.

[Trader 123]

Wave Rust,

I've noticed that you have been highly critical over Obama's Fin-Reg, but the fact of the matter is that this regulation doesn't tie any of the banks hands behind their back whatsoever. You obviously disagree.

Care to highlight what it is that "handicaps" capital formation and the trading operations of the Banks. Please be specific.

[Mamma Boom Boom]

On second thought, I don't believe the 1150 right shoulder is in play. We go much higher than that.

"Can you take me Higher?
To a place where blind men see
Can you take me Higher?
To a place with golden streets"

[upstart]

We go higher, after the rest of the correction unfolds in July.

[Account Deleted]

Dow jones end of day analysis
http://niftychartsandpatterns.blogspot.com/2010/06/dow-jones-analysis-after-closing-bell_26.html

[Roger D.]

The volume of 2.5 billion shares is a bad omen. That's volume and price action that forecasts a crash starting Monday.

Roger D.

[Roger D.]

Yahoo is showing 2.5b down & .8b up total 3.4B, Now I no Monday is bad news.

RD

[Trader 123]

"The volume of 2.5 billion shares is a bad omen. That's volume and price action that forecasts a crash starting Monday." Roger D.

You are a complete idiot.
Ever hear of the Russell Index Rebalancing?

It occurred today.
Hence, the increase in volume.
Duh.

[Glenn Loser Neely]

"For all you Bulls and Elliot wanna be's, I would study this chart,it is anything but bullish, in fact given this pattern is in the GS position, I would not want to be long here at this moment in time."

Roger D.

http://www.screencast.com/users/parisgnome/folders/Default/media/2a500242-acd2-485c-9b43-cc664783c2e0

NICE CALL "WRONG WAY ROGER"
GS was +$5.00 today.
:)

[Roger's Bearoin Dealer]

The volume of 2.5 billion shares is a bad omen. That's volume and price action that forecasts a crash starting Monday.

Uh, I think I'm going to need more bearoin for Roger than I can supply on my own. Anyone got any extra?

You are a complete idiot.
Ever hear of the Russell Index Rebalancing?

It occurred today.
Hence, the increase in volume.
Duh.

Hey, man, don't call my best customer an "idiot"! That's my meal ticket you're talking about! If he goes off the bearoin, my kids don't eat. Just play along with his bearish delusions and no one gets hurt.

[Dave B.]

Hey Roger,

How much capital are you trading with and what percentage of it is currently being used to support BEARISH positions?

[Mr. Panic]

Bearish engulfing bar formed on the weekly for every index. SP closed below 1079 mark on the weekly. Every hedge fund on the planet will be shorting the market Monday morning if they aren't already positioned that way. They are going to create a self-fulfilling prophecy and make sure the market gaps down on Monday. But I am sure some nicely timed news event emenating from the G20 summit will provide sufficient cover.
Once again, my best trading day cycle provides a turn on June 18/21 (closing high/intraday high--turn). A few of the others are approaching soon but I haven't done the count yet.
Oh and numerology wins out over traditional cycles again. June 21st===27trading days(999) from May 12 post flash crash high. It was also 18 trading days from the May 25 low and also affected by a 9 day trading cycle which caught the May 25th low and SP 1042 low from the second week of June.
Saturday is also the opening of the Puetz Crash window with the appearance of a lunar eclipse before the July 11 solar eclipse. There were a lot of crash calls, calls for a low to be made today/ghost prints but it didn't make sense for an important low to be made right before the Puetz window opens thus throwing off the most hardened of bears. Meanwhile it seems like everyone else is bullish. I see a lot of talk about a meltup on Monday/ the market finishing off a B wave before embarking on Wave c to complete the right shoulder/ the dollar now is in a correction--too many euro bears etc. etc. (and I don't believe in head and shoulder patterns)

[Mr. Panic]

Based on the June 1930 fractal, there should be a massive gap down on Monday but today should have been more of down day. 1987 isn't as clear. It just gradually dropped to the equivalent of the SP 1040 level before it had a big one day bounce. But it had some small down days like today during the early October drop.

[Roger D.]

Yelnick,

I think WMT is telling us "Greater Depression"

Roger D.

http://www.screencast.com/users/parisgnome/folders/Default/media/a444f297-3762-428e-b52b-524cc0d29915

http://www.screencast.com/users/parisgnome/folders/Default/media/13116c5e-29ef-4638-94f2-b10453b631eb

[Roger D.]

Get ready, WMT,MSFT,KO,MCD,etc. are all accelerating down.

[Prechtur aka "BP"]

Roger;

OK!

You've proven yourself well and have equalled my pathetic track record. You can have Hochner's position and we'll move him to the Asia Division.

I need you and Hochner to continue giving out crappy wave readings and lead more people to the slaughter house. We will be needing massive amounts of market fodder over the next 6 weeks.

Roger, you're coming across like a fringe fanatical lunatic! You need to dummy that up as that could cause problems. People like DG and GLN are already getting suspicious.

If you want to earn your stripes at EWI you need to come across well-balanced and of high intelligence. You also need to develop your ability to logically and convincingly explain away your bad calls when they are thrown in your face —WITHOUT losing your composure!

We here at EWI take pride in having one of the crapiest track records while still being able to lure in all the new suckers born every day.

Don't make me regret giving you Hochner's chair; he's been feeding people to the wrong side of the market very ably for a very long time. You have big shoes to fill. You've already got the dismal track record, just work on coming across more mentally balanced or you'll lose followers.

EWI is counting on you son.

GO GET'EM TIGER!

[Account Deleted]

S&P 500 Broadening bottom formation in daily line chart
http://niftychartsandpatterns.blogspot.com/2010/06/broadening-bottom-of-s-500.html

[Roger D.]

I'll post this last chart, FedEX, this count shows a historical top is taking place. If it makes one last bounce Monday it really doesn't matter. That possible hanging man candle Friday says that a acceleration down will take place.

Many stocks are in this postition and no matter the "explanation" for the large volume Friday(Russell), that is bearish.

Roger D.

Have a great weekend.

http://www.screencast.com/users/parisgnome/folders/Default/media/298d058c-70dc-4ee9-97ee-6eb9133b252b

[BZX]

Inverted Head and Shoulders on Hurst 5 week low looking interesting...

[Gooner70]

Yelnick

Nice article,,,the signs are really not looking good with regard to the Double Dip,,, what should be really worrying is how this scenario is playing out when one considers that the Government and the Fed have more or less thrown the Kitchen sink at this.... --- With regard to the issue of the yield curve, I believe that in a low rate environment, the effectiveness of the Yield Curve as a recessionary indicator is greatly reduced... I have posted my thoughts on this just a couple of days ago - see:- http://hometraderuk.blogspot.com/2010/06/is-us-yield-curve-losing-its-ability-to.html - Unfortunately I do not have enough historical data points to confirm the validity of this, only time will tell if my theory on this is correct.

[yelnick]

Gooner, nice work on the yield curve. Since we are in a 100 yr flood, not sure you can find good surrogates. My post suggested that we should look at private short term rates vs private long rates instead of looking at Treasury rates. Consider the low fed fund rate as artificial and look into the real economy.

In any event, it seems the Fed has one tool left: $5T of QE.

[Roger D.]

Here's John Mauldin's take on a double dip.

John is very well respected.

http://www.businessinsider.com/here-comes-the-recession-2010-6

http://www.businesscycle.com/news/press/1872/

Roger D.

[nspolar]

Roger, Mr. Panic, Hank W, usdollar and even bullish Mama:

Something for all of you at this site.

http://www.apartofny.com/

Some nice charts and organized work.

I am on a very similar path, and have the primary B complete, but by a conventional EW count. No Neely stuff for me.

W/r to the current position is not confirmed (imo) that the ii up is complete. 60/40 yes it is.

My primary B count.

http://img708.imageshack.us/img708/714/100625indu.gif

ns

[Roger D.]

nspolar,

very nice chart. Thanks for posting.

Roger

[nspolar]

Roger, I would like to make a comment to you with reference to your labeling.

We do not really have confirmation that a 'C' down is underway. That will be determined by Mr. Market.

But if we assume it is, I do not see validity to the premise that a 1 down is complete. It could be, or it could be just a 'i of 1'. If the 'C' premise is valid, I suspect then the i of 1 premise is likewise valid. Why? Too little time has transpired imo for a 1 of C down to have completed.

So a suggestion perhaps is to back things like this into your labeling. Don't lock into anything. I do look at your charts.

That top in AAPL is a bitch to label. If a top is forming it looks to me like it needs one more small shot up to complete. Does this maybe infer the 'ii' of Primary C down is not yet complete?

ns

[Roger D.]

ns,

I think one down is complete at some degree yet to be determined. My guess is that it is of minute degree. This has been a little frustrating because of the volatility introduced by many things. Though the importance of this top,these things should be expected. This top is more historical than 2000 or 2007.

As you know after many months of my charts and my interpretations we should see this pattern resolve very soon.

I would guess the balance is held by these current sentiment numbers and the outcome of European leaders to continue to follow the keynesian path.

The CDS spreads are widening for all government debt,thus forecasting another credit crisis.

Have we reached the point last week were fund managers are convinced that we have a double dip? The breakdown of certain stocks point to maybe.

Roger D.

[Roger D.]

ns,

I thought I wrote the 1st part of this,lol.

http://www.apartofny.com/

[Roger D.]

Arch Crawford's latest thoughts.

http://podcast.streetiq.com/streetiq/?GUID=13618261&Page=MediaViewer&ChannelID=3130

[OracleLurker]

Roger I hope you are early since my work suggests it is a little too early for the the next down cycle to kick in - this is based on a very limited sample size however. What i find interesting though is the amount of ridicule being directed your way for your bearish stance in the context of what has been an extraordinarily weak rebound from such a deeply oversold condition as we reached on 6/08. Up/down volume has been weak and not just starting yesterday - How does Russell re-balancing automatically lead to greater down volume? I am long for now but doing so to play this "tease" bounce is starting to feel like reaching for pennies in front of a steamroller.

[joe]

i have my own work to make my trading decisions on but thought id mention
a few things . my own cycles call for a high in early august . it is based on
a 2 year cycle . the problem now that i see in this market is we may have already
peaked . this leaves room for backing and filling yet the larger cycles are now
turning down . someone above mentioned the puetz window .there is NO PUETZ window
this year . if you study the set up you will see it does not exist for this year
2010. to have the set up you need the solar eclipse first and then the lunar eclipse
follows . so the set up is not here period . now if you look at chris carolans basic
set ups there was a spring low due on the dow on june 12 for this year and then calls
for the summer high sept 8th and a crash date would be nov 6th . i resepct his work
yet it is not all that reliable year to year . just something to make a note of.
now since you mentioned the fractals , i also look at past market patterns and i have found
one that bears paying attention to. looking through the the "selected artitles " by the late george lindsey . he mentions what has been known as lindsey time spans. basically all bull
markets or bear markets tend to move in roughly the same amount of time . he mentions one
sub normal bull market time spans that was from the oct 25 1960 Low to the Dec 13 1961 high
the time count was 414 calendar days .if you count 414 calendar days from march 6th 2010
you come up with a date of april 24 2010 which was a saturday . if you count from march 9 2009 414 calendar days you come up with a date of april 27 2010. the dow peaked on aril 26 2010 which was the minimum expectation . he also states that from every major low point you look for a high roughly 15 yrs 3 months to 16 yrs 3 months from that low .
it is a rough guide only . he state that the 16 yrs 3 month period was rare , the range between the dates is the guide .the only comparison would be the april 1994 low or the nov 1994 low to go by
and while the stock market did not make a significant bear market low in that time frame that time frame was the point in time when a significant
bull market blow off began . hence it is important.
he also stated that when your looking at bull market time spans and you know you are coming into the 15 yr 3 month to 16 yr 3 month time period you need to consider the short or even sub normal time spans when your looking for a bull market high .
so putting it together 16 yrs 3 months is 195 months . if you count 16 years 3 months from the low back in april 1994 you target july 2010 as the
streched date ( the market has most likely already peaked then ) to go further just for some fractals i guess . april 1994 to the jan 2010 high was 189 months . if you count 189 months from the 1994 high low ( where the break out to the upside began )
you get august 2010 . now to finish this up
if you take a monthly chart from oct 1960 and run it out to oct 1962 and then overlay it on the monthly dow chart from march 2010 to date you will see what im talking about . the equivilant calls for a sideways move for july and august 2010 followed by a breakdown into novemebr 2010 .
the decline from the dec 1961 peak was 29.23917 %
if you were to use this as a guide then the dow
from its 2010 april peak would fall to 3291.74 pts
from its 11258.01 high . that targets 9766 and change by november . hence i would pay attention to chris carolans work over puetz this year because the puetz window does not exist . lastly and this is a bit odd arch crawfords mars uranus crash cycle
calls for a significant decline begining in early august 2010 and calls for the bottom feb 25 2011
yet it also have a signicant low due nov 16th yet the end of the cycle is feb 25. my own cycles work calls for a cycle to turn bullish may 2nd 2011 .
now for another analogy .if you look at the dow from 1956 through 1957 , you can see what linsey labeled a 3 peaks dome house pattern overlaying that pattern in todays dow would allow for a double top ( re test of the april high ) into july 31 201
( the dates surrounding late july early august this yr are huge ) following that peak in late july there would be a series of lows .sept 24 2010
then a lower low nov 25th ( and carolans crash date fits into this on nov 6th )then a final low feb 3rd 2011 .
bottom line : weather this market trends sideways or actually rallys back up .it would be in your best interest to have a highly bearish stance following any overbought readings come july 31 2010
because everything i just mentioned all says the same thing . we are going to break down from august to november and dow 8000 is not really such a bad projection even if it seems like a stretch .
thanks
joe
www.tradersaffiliates.com

[joe]

correction to above
the quivilant target would be 7966 on the dow
by november.

[Roger D.]

Oracle,

Schwab showed in the final minute negative volume of 197 million share out of a total 254M traded. Probably explains the 32 pt dive that my livecharts 1 minute chart doesn't show.

Is it bearish and is it predictive? The futures closed up in the final 15m, So we will see Monday. Yahoo has these figures, but I can't confirm these anywhere else. NYSE is the first row.

Advances & Declines
NYSE AMEX NASDAQ BB
Advancing Issues 2,750 (71%) 483 (68%) 1,822 (66%) 466 (34%)
Declining Issues 1,044 (27%) 195 (28%) 826 (30%) 524 (38%)
Unchanged Issues 101 (3%) 30 (4%) 104 (4%) 381 (28%)
Total Issues 3,895 708 2,752 1,371
New Highs 84 13 46 122
New Lows 64 16 116 351
Up Volume 1,072,874,857 (29%) 1,086,434,265 (83%) 3,301,566,851 (389%) 218,756,009 (29%)
Down Volume 2,609,680,077 (70%) 194,758,275 (15%) 1,745,628,982 (206%) 107,514,593 (14%)
Unchanged Volume 40,812,316 (1%) 21,188,529 (2%) 95,682,261 (11%) 421,333,231 (56%)
Total Volume 3,723,367,2501 1,302,381,0691 847,910,7981 747,603,8331

RD

[Roger D.]

Yahoo Finance

http://finance.yahoo.com/advances

[DG]

What i find interesting though is the amount of ridicule being directed your way for your bearish stance in the context of what has been an extraordinarily weak rebound from such a deeply oversold condition as we reached on 6/08.

Oracle,

Just to clarify, my ridicule is based on some very specific things:

1. The lack of any sort of rule-based wave analysis in Roger's charts, which enables him to just subjectively claim all sorts of bearish scenarios without any reference to the kinds of disciplined analysis that has at least partially been successful in identifying wave patterns in the past. Nothing is perfect, but does that mean everything is equally valid? Not in my book.

2. The continued assumption that the close of every trading day is the end of a pattern of significance. Go back and look at a chart to note the number of (for lack of a better term) "swing" trades one could have made since the March 2009 low. What are there? 5? 10? 20? OK, it will depend on how long you want to hold your trade for and how you filter for trend changes, but the point is that those types of patterns end maybe once a month. Yet, Roger is proclaiming every day the end of some pattern or other. Eventually, the broken clock will be right, but if that is the "standard of excellence" being thrown around as worth achieving, it's a pretty low standard.

3. Roger's broader wave count is just wrong, so any lower Degree analysis based on it will also be wrong. One can be bearish based on a wave count that doesn't require Armageddon to occur, you know. I've said many times that a retest of the March 2009 low is highly likely and even a slight breach of them is feasible, so I'm bearish, too.

It's the extremity of Roger's message, combined with the lack of any sort of logic to his wave count, that has me ridiculing him, as well as the fact that the guy never seems at all curious why his counts don't work, not the bearish message per se.

There was a larger bull camp here until of late, including one guy who was calling for new all-time highs. Don't know what their disappearance means and I'm not one of those who thinks broad conclusions about the markets can be drawn from a website on which a couple dozen people post.

[OracleLurker]

I'm not really looking to defend anyone on here and you're points on the wave counts are persuasive to me - my system is based more on cycles so I'm no expert with ewt but I thought the criticism made by some others outside of the wave stuff was actually way off-base, although kind of amusing. I just can't wait to start shooting the bearoine in a week or two.

[BZX]

Put call ratios getting lofty...

Uploaded with ImageShack.us

[nspolar]

joe, your cycle comments are of interest.

The current market imo has a bit of everything, for everyone.

I prefer cycle work to anything else, EW then acts as a crutch to support. Off of pure cycle work the early August high makes a lot of sense. But sometimes the time window the cycle analyis wants to land for the cycle high is not, and in this case then the early August window would be the first lower high. It is for this reason I am not convinced the apparent 'ii' is in.

I would not be surprised if we trend lower for a week or more yet, then put in a decent rebound but to a lower overall high. Likewise I would not be surprised if we just work lower here. I tend to think gold is a very good leading indicator here. If it drops out of the sky, it is over, for everything.

And w/r to "from its 2010 april peak would fall to 3291.74 pts" ....

From the value posted on my chart for the end of the 'C' down, I have to agree with your first premise. My value is based on exact fib projections.

ns

[Roger D.]

The FTSE is at a critical juncture. Is that 5 down off the top and a 3 up with a 3rd wave in progress or is that a A B and now in C with a possible low this week as the trend channel expands again and holds for the bulls?

With BP heading to the 20's or teens what will sentiment do increase?

RD

http://www.screencast.com/users/parisgnome/folders/Default/media/1c5dbddb-7ff9-47b2-9410-e2395847484e

[Roger D.]

I have been posting this pattern for months. Nice to see I have company.

Good night.

Roger D.

http://www.screencast.com/users/parisgnome/folders/Default/media/1576d01c-8758-467f-a166-af62715c3960

[Hank Wernicki]

nspolar, nice work

Based on the NDX and QQQQ, I'm seeing a Gap Down on Monday

[Steven_737]

eye opener:

http://www.zerohedge.com/article/how-hft-quote-stuffing-caused-market-crash-may-6-and-threatens-destroy-entire-market-any-mom

did someone say Hurst cycles?? hahaha

[Steven_737]

Just to make sure everyone will got to the link posted in the previous message, here are a couple of paragraphs to highlight what the findings are:

pay special attention to this:

"We decided to analyze a handful of these cases in detail and graphed the sequential bid/offers to better understand them. What we discovered was even more bizarre and can only be evidence of either faulty programming, a virus or a manipulative device aimed at overloading the quotation system. You can see our results in Part 4, Quote Stuffing"

http://www.nanex.net/20100506/FlashCrashAnalysis_Part4-1.html

"Quote Stuffing Fingerprints - BATS

The BATS exchange generates data that is SO unusual and bizarre that we now refer to them as the "Crop Circle" formations and have given the formations unique names. If one did not know better they would almost be inclined to consider this some type of virus in the BATS software. While in not all cases, the majority of the sequence quotes are staggered between valid quotes and stub quotes. Volume of these erroneous quotes can be enormous on any given burst or sequence and can last anywhere from a few hundred milliseconds to a few entire seconds."

watch those charts!!

and

"Conclusion:

What benefit could there be to whomever is generating these extremely high quote rates? After thoughtful analysis, we can only think of one. Competition between HFT systems today has reached the point where microseconds matter. Any edge one has to process information faster than a competitor makes all the difference in this game. If you could generate a large number of quotes that your competitors have to process, but you can ignore since you generated them, you gain valuable processing time. This is an extremely disturbing development, because as more HFT systems start doing this, it is only a matter of time before quote-stuffing shuts down the entire market from congestion. We think it played an active role in the final drop on 5/6/2010, and urge everyone involved to take a look at what is going on. Our recommendation for a simple 50ms quote expiration rule would eliminate quote-stuffing and level the playing field without impacting legitimate trading.

Added 06/25/2010: It is important to note that we understand 5,000 quotes in one second on any given issue would pose no problem. However, consider that there are approx. 4,000 stocks listed on the NYSE and 9 reporting exchanges. If each reporting exchange for each stock quoted at 5,000 per second this would work out to 180,000,000 quotes per second. Furthermore 5,000 quotes per second is 5 changes per millisecond.

At those rates you'd have to abandon the concept of market orders entirely. In fact, at rates exceeding even 50 quotes per second/stock you'd have to abandon market orders entirely.

Some would also point out that you couldn't change the prices at those rates due to the bid/ask spread being so narrow. However there are plenty of cases where the price remains fixed and the sizes flutter. "

Duncan, looking forward to your comments...
cheers :)

[Steven_737]

the preliminary SEC report:

http://www.sec.gov/sec-cftc-prelimreport.pdf

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[Steven_737]

make sure you read this and the charts

"In summary, quotes from NYSE began to queue, but because they were time stamped after exiting the queue, the delay was undetectable to systems processing those quotes. The delay was small enough to cause the NYSE bid to be just slightly higher than the lowest offer price from competing exchanges. This caused sell order flow to route to NYSE -- thus removing any buying power that existed on other exchanges. When these sell orders arrived at NYSE, the actual bid price was lower because new lower quotes were still waiting to exit a queue for dissemination.

The small delay was enough to cause the runaway drop that started at approx. 14:42 - 14:43 on 05/06/2010. "

http://www.nanex.net/20100506/FlashCrashAnalysis_Part3-1.html

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[Ted]

Things are looking good for the Bears, watch this...

http://www.youtube.com/watch?v=thMm-7RFsm0