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Is There an SPY Pump And Dump?

Christian 1 September 2009 734 views 3 Comments

Over at zero hedge there is a blog entry that talked about the pump and dump of the SPY. That pump and dump is not just on the SPY, but also on the QQQQ and a number of other stocks. I suggest you look at my image referenced by the link, which is a screen shot of my desktop.

What you should notice is that there are these huge honking bars at the end of the day. I noticed these bars and thought, “you know what I am want to take part of this action.” After all if the bar jumps so high I could short it because within the split moment it falls back to the close.

Thus I put out two live full block orders to short and go long a certain percentage above and below the market. My thinking is that I would get filled and make instant money. I might not be able to fill that much, but hey an extra couple of thousand a day would do me quite fine.

A week later I noticed something weird in that I was never filled. I always seemed to miss those orders. And thus I thought, what gives? What am I missing?

The pattern is that the high and low of the bars is that they don’t exceed the high or low of the day. And that had me perplexed. Why on earth would those values not be exceeded? What if there is more to this than meets the eye?

WHAT if these trades are in fact trades that occurred, but not when you think they did? It hit me that maybe these are dark pool trades. Dark pools are avenues of liquidity where the order books are hidden and the trades are published, but at the discretion of the dark pool. Though they have to publish the numbers, and it makes me wonder if this volume is nothing more than dark pools showing their past trades.

This has the ramification of something that I have been talking about all the time, namely that you can’t count on volume anymore. Look at the volume that happens at the end of the day or in after hours? It can be very large. And what if the dark pool plays games in that sometimes it shows the numbers live, and sometimes not? You can’t rely on numbers.

Though get back to zero hedge. It gets a bit tedious when zero hedge always sees the conspiracy… Maybe if they thought about things a bit more there might even be other answers…

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3 Comments »

  • Retirement Savior said:

    All this movement right now seems to be institutions and hedge funds standing in a circle and shooting at each other. This choppiness and uncertainty will end at some point and a trend will re-emerge. I wouldn’t say there is a conspiracy, just everyone trying to figure out how to make money in all of this.

    I randomly fell into your blog, and I like what I see….keep up the good work, I’m going to keep coming back!

  • Patrick said:

    Have you ever considered that the psychological mechanism behind Elliot Wave theory, that trends are driven by those who profit most from the trend, might also apply to so-called “conspiracy theory”? If a trend reaches its climax in a bout of position closings by those who have been with the trend longest, is that not a tacit conspiration, albiet not explicit? Just something to consider, perhaps powerful people getting together and having a plan at some level or organization isn’t such an outlier, but rather baked into the cake.

  • Christian Gross said:

    I agree with both of you. There really is no conspiracy and Zerohedge is a bit over the edge.

    Though I have seen more and more of these types of bars and it will really kill those automated trading systems since they could get a false positive.

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