Are We Heading For Another 1987-Style Crash?

Good Morning Investors

The big story developing in the US markets regards the sudden crackdown by regulators, most notably the SEC and Justice Department, on High Frequency Trading or HFT.

For well over five years now, certain trading firms have been using high-speed computers to front-run orders from other investors.

In simple terms, the market exchanges, like the NYSE, would let these firms (for a price of course) see when someone put in a market order to buy or sell shares on the market.

The trading firm would then use super fast computer programs to buy or sell shares in front of that order, before turning around and selling the shares to the investor at a slightly higher price. The trading program may only make a $0.01 profit by doing this, but because they were doing it millions of times a day, they were making billions of Dollars per year.

At one point, this practice accounted for as much as 70% of all market volume. Put another way, 70% of all shares being traded on the market were not from investors actually placing buy and sell orders, but from computers front-running investors and each other.

These firms argued that they were providing liquidity to the markets (an outright lie). The reality is that they spent millions of dollars lobbying in Washington DC to make sure that the regulators didn’t crack down on them.

However, it would appear that things have finally hit a boiling point with author Michael Lewis publishing a book exposing HFT as the immoral and illegal activity it is.

Between this, and a number of high profile media appearances, Lewis has finally raised public awareness on the issue of HFT. And the public is not happy about it As a result both the SEC and Justice Department have opened investigations.

As far as stocks are concerned, we’ve seen a sharp drop in the companies that were highly favored by HFT firms.

Amazon, an HFT favorite, has imploded from its highs.

 

 

 

 

 

 

 

The same goes for Facebook:

 

 

 

 

 

 

 

This was always the problem with HFT: that these firms were pushing prices higher, through artificial pressure, not real buying power. Now that they’re moving out of the market, we’re seeing the consequences of this.

Indeed, the sharp drop in those companies favored by HFT firms predicted the recent collapse in the NASDAQ index as a whole:

 

 

 

 

 

 

 

Today, the NASDAQ is resting on its 100-day moving average. As you can see in the above chart, this line has help during every correction since 2013.

IF we see a breakdown here (meaning this line doesn’t hold), then the HFT crackdown could become a very serious issue for the markets. With these programs dominating trading so much, removing them from the market will have serious consequences for prices.

The whole situation is very reminiscent of the computer trading, which led to the 1987 Crash.

Could the markets crash again? We’ll see. But smart investors should be prepared for whatever may come.

On that note, if you’re seeking investment recommendations on how to position your portfolio, you should check out our paid monthly newsletter Private Wealth Advisory.

Private Wealth Advisory is a monthly investment advisory that outlines the market action and shows you how to profit from what’s to come. On that note, we currently are sitting on over 17 winners in our Private Wealth Advisory portfolio, with gains as large as 18%, 21%, even 33%… all opened in the last year.

Every Private Wealth Advisory subscription comes with a iron clad 90 day refund period. So if you find Private Wealth Advisory is not for you at any point in the next three months, simply drop us a line and we’ll issue a full refund.

The reports you download and investment ideas you get between now and then are yours to keep.

To subscribe now to Private Wealth Advisory for just $179 (a 40% discount from the normal market price of $300)…

Click Here Now!

Best Regards

Phoenix Capital Research

 

 

 

Disclaimer: The information contained on this website is for marketing purposes only. Nothing contained in this website is intended to be, nor shall it be construed as, investment advice by Phoenix Capital Research or any of its affiliates, nor is it to be relied upon in making any investment or other decision. Neither the information nor any opinion expressed on this website constitutes and offer to buy or sell any security or instrument or participate in any particular trading strategy. The information in the newsletter is not a complete description of the securities, markets or developments discussed. Information and opinions regarding individual securities do not mean that a security is recommended or suitable for a particular investor. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. 

Opinions and estimates expressed on this website constitute Phoenix Capital Research's judgment as of the date appearing on the opinion or estimate and are subject to change without notice. This information may not reflect events occurring after the date or time of publication. Phoenix Capital Research is not obligated to continue to offer information or opinions regarding any security, instrument or service. 

Information has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. Phoenix Capital Research and its officers, directors, employees, agents and/or affiliates may have executed, or may in the future execute, transactions in any of the securities or derivatives of any securities discussed on this email. 

Past performance is not necessarily a guide to future performance and is no guarantee of future results. Securities products are not FDIC insured, are not guaranteed by any bank and involve investment risk, including possible loss of entire value. Phoenix Capital Research, OmniSans Publishing LLC and Graham Summers shall not be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided. 

Phoenix Capital Research is not responsible for the content of other websites or emails to which this one may be linked and reserves the right to remove such links. OmniSans Publishing LLC and the Phoenix Capital Research Logo are registered trademarks of Phoenix Capital Research. Phoenix Capital Management, Inc.
What Happens When the Everything Bubble Bursts?
  • By trying to corner the bond market (risk-free rate)
  • the Fed has created a bubble in everything
  • We call this THE EVERYTHING BUBBLE
  • Reserve your copy of our Executive Summary
  • To prepare for what's coming down the pike!