Tags: NYSE | FOMC | markets | economy

Breaking Down the NYSE Breakdown; FOMC Minutes Show Panic

By    |   Thursday, 09 Jul 2015 12:16 PM

The lead story of the day was another trading glitch on Wall Street. In the first clip, Fast Money Trader Steve Grasso explains how he and other sophisticated traders took their orders out of the queue, or limbo state, and routed them to other venues, such as exchanges and dark pools, to get them executed. He did not mention this, but other commentators pointed out that liquidity and price discovery were not as good as if the NYSE were operating, but traders could avoid being held hostage. Thus the market fragmentation the industry has long decried served traders well in this instance. Also, the Securities and Exchange Commission is mired in a top-to-bottom study of market structure that history suggests could take five or ten years.

Speaking of the SEC, former Republican Senate staffer and SEC Commissioner Laura Unger gave her views on the glitch in the next clip, speaking to CNBC’s Bill Griffeth, who observed that the glitch demonstrated that the NYSE is no longer the center of the trading universe. Unger said that the market response showed that some parts could function while the NYSE was closed “without there being a huge loss in investor confidence,” once it was established that the glitch was not the result of a cyber attack. Kelly Evans asked why trading could not resume more promptly by switching to a backup arrangement. Unger responded that this was a physical issue reminiscent of the NASDAQ problem with the Facebook IPO two years ago, when traders called a Code Blue but NASDAQ decided to go ahead anyway, and she insisted that “the system worked pretty well today.”

In the next clip, Morgan Brennan asked Boris Schlossberg, of BK Asset Management, and Larry McDonald, of Societe Generale, for their views on what the latest release of FOMC minutes revealed about the likelihood of Fed action to raise interest rates. McDonald reminded viewers that, “There’s a price to pay for six years of zero interest rate policy (ZIRP).” He speculated that, “The Fed is probably panicking behind the scenes, because they can’t necessarily raise rates.”

McDonald attributed this to concern in China over the prospect of a Fed rate hike. Schlossberg pointed to Greece as a source of Fed concern, because the Fed is worried about returning to a 1938 scenario that could see the economy relapse into a recession, and the Fed wants to avoid this “at any cost,” so it will be “much more cautious than anybody thinks they are,” and a hike will be pushed out at least to December. These remarks confirm what this writer has said about the risk that the Fed would lose control and panic. Soon someone, perhaps a cynic like Peter Schiff, who has predicted the Fed will never raise rates, is bound to point out that next year is an election year, and part of the Fed’s mandate is to avoid a damaging recession or crisis episode until after the election, something it failed to do in 1992 and 2008.

Finally, technical analyst Todd Gordon predicts a selloff of Intel (INTC) coincident with its earnings announcement next week, and he also sees the stock as vulnerable to conditions in China. He shows that Intel has been underperforming the NASDAQ, and he expects the NASDAQ to decline. Therefore, he would move preemptively based on a head-and-shoulders reversal pattern by buying Intel July 30.5 puts with a stop at 31. This writer would add simply that if the tech sector is rolling over, there could be more opportunities like this, but ultimately, pundits who have predicted a crash have forgotten that the Fed stands behind this market.

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Robert-Feinberg
The lead story of the day was another trading glitch on Wall Street. In the first clip, Fast Money Trader Steve Grasso explains how he and other sophisticated traders took their orders out of the queue, or limbo state, and routed them to other venues.
NYSE, FOMC, markets, economy
607
2015-16-09
Thursday, 09 Jul 2015 12:16 PM
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