Machine Gunning the SPY Tape

Monday, June 08, 2009

So, what happened today in the last hour's crazy reversal? Tyler Durden over at Zero Hedge has done some great work on the "machine gunning" of the tape that has occured in the SPYs on every dip over the last several weeks. Today's action was no different.

Zero Hedge posted a Bloomberg shot today of the "Indication of Interest" showing the broker behind recent orders in the ETF. As Durden coined, you can see JPM "gunning" the ETF sending rapid-fire orders in small blocks in a very short period of time. Durden says, "Based on the market pattern in the past 4 weeks, the buyer has manifested itself (usually through JPM's ETF trading desk) every single time there is a potential weakness in the market: the 5-10k SPY/IWM blocks appear out of the blue as if on cue." The high prevalence of algorithmic trading systems creates artificial buying interest as computer programs are setup to recognize rapid succession buying and automatically buy joining and creating the momentum.
While the market certainly sees increased volume in the last hour of the day, you can see that today the SPY saw an absolutely massive spike in volume with no news to justify the highly inflated interest. In total, just over 200 million shares of SPY traded hands today with nearly 70 million shares going off in the last 45 minutes. Likewise volume spikes were not seen in the rest of the market, just the SPY ETF. Real accumulation by fund managers does not occur in a 45-minute free-for-all with buyers indiscriminately buying at every price. The market ETFs are a relatively easy way for someone with a bankroll to inflate prices in the short-term by creating the illusion of buying interest.
There is nothing inherently illegal in this "manipulation" but it is worthwhile for investors to take note of the action. The low volume allows for a single participant, whether JP Morgan themselves or a third-party, to create the illusion of real interest. But these moves higher are highly suspect. Clearly, higher prices are in the best interests of most market participants but artificial inflation will only last so long.


Sonny said...

Great post, man. . . good food for thought

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