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

Stocks in this article: AAPL QQQ QQEW RYT XLK TOL ITB SLV GLD

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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SPY - The SPDR® S&P 500® ETF is a fund that, before expenses, generally corresponds to the price and yield performance of the S&P 500 Index. Our approach is designed to provide portfolios with low portfolio turnover, accurate tracking, and lower costs.
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IWM - The iShares Russell 2000 Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the small capitalization sector of the U.S. equity market as represented by the Russell 2000 Index. The index represents the approximately 2,000 smallest companies in the Russell 3000 Index.
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QQQ - PowerShares Capital Management LLC is passionate about our goal of delivering the highest quality investment management available through one of the more benefit-rich investment vehicles ever created, the exchange-traded fund.PowerShares QQQ¿, formerly known as "QQQ" or the "NASDAQ- 100 Index Tracking Stock®", is an exchange-traded fund based on the Nasdaq-100 Index®. The Fund will, under most circumstances, consists of all of stocks in the Index.
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QQEW - The First Trust NASDAQ-100 Equal Weighted IndexSM Fund is an exchange-traded index fund. The investment objective of the fund is to replicate as closely as possible, before fees and expenses, the price and yield of the NASDAQ-100 Equal Weighted IndexSM.
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