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Program Trading Takes Us Down


(sorry that the image isn’t larger – its a cut/paste from my daily monitoring software and a larger image isn’t available)

It’s been awhile since we saw a day like today, where we were positive until the last hour then the selling wave hit.

Very likely, we had several program (or automated) trading modules kick in. Could be that some use a key metric, like oil closing over $80 per barrel (remember my note the other day about how oil over $80 means that it exceeds 4% of GDP – which puts downward pressure on economic activity). Once those programs kicked in to start selling, others followed suit based upon the speed of the move down or whatever other metric the quantitative traders use in their programs.

In any event, we are back below 10,000 on the Dow and we will have to wait to see what tomorrow brings. Fundamentally, the only things different from last week are: (1) better than expected earnings reports from several economically sensitive companies – which generally signals better times ahead for the economy; and (2) oil closing above $80 for the first time in a year, which slows the economy.

The economy can grow in spite of $80 oil, it just doesn’t grow as fast. For those readers of this blog, you know that we anticipate a slow growth recovery based upon deleveraging and unemployment levels. Oil at these levels just means that instead of 1.5% growth we could have fractionally lower than that. In either case, it is not the 3% growth our economy used to experience.