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Nefarious High-Frequency Trades Stomp Markets: Dave's Daily

The big story Wednesday was a "bear raid". It began with what some initially referred to as either a mistake ("fat fingered") with unusually large selling of Treasury futures contracts (over 100K contracts in one trade). The trade, later described as legitimate ( see WSJ story) was based on the idea Bernanke would take QE3 off the table sending interest rates higher. The size of these trades created a domino effect triggering heavy selling in commodity markets, especially with precious metals which are also on an options expiration cycle.

Much of the related selling was triggered by HFT algos piling headlines with selling. It's also been common the past couple of years now to see some deliberate manipulation of prices by a handful of institutions in precious metals markets at the futures and options exchanges. Gold prices fell over 5% and silver almost 7% as trailing stops were triggered. These have been termed "bear raids" by most participants. It makes being involved in these markets like swimming with sharks.

Economic data released today put a positive spin on markets as GDP data 3% growth vs 2.8% expected); Chicago PMI ( 64 vs 61 expected and prior 60.2); and, the Fed Beige Book showed modest to moderate overall economic growth.

Bernanke's Humphrey-Hawkins testimony was his usual shpeal containing little new information. The only entertainment was the usual exchange with Congressman Ron Paul.

Stocks declined overall on the last trading day of February as algos were active in stocks as well. Bonds were lower on the heavy selling on Bernanke speech.  We already know about commodities and currency markets.

Not surprisingly volume increased on selling which is typical. Breadth per the WSJ was negative and only a handful of stocks did better--care to guess? I thought not.

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