Grail Investing

…many trading desks have computers pre-programmed to limit key strokes. Instead of hitting three key strokes to sell 100, you teach the computer to “assume” the “00”. That allows you to hit a single key “1” which is then translated into 100 shares. Not much of an error if you’re selling 100, but if you try to sell 1 million, those two invisible zeroes changes your order into 100 million. That’s a market mover, especially if you’re selling a basket rather than one stock.
– Art Cashin

Art Cashin has been on the floor of the NYSE for something like 50 years. He’s one of the few I listen to when he comes on CNBC. In addition to the above quote he also said that he remembers that in the 1980s an order came to the floor from Paine Weber that looked way too large. Somebody noticed it and contacted the firm to make sure it was right. It turns out the order was placed by a summer intern who entered a number to buy or sell stock with too many zeros. The order was canceled.

The point is a real human being was able to catch it. It’s one of the problems with electronic trading.

Okay, on to the big news this morning. The European Union has agreed on a 750 billion euro ($950 billion) bailout to try to stop a debt crisis that began in Greece but is now scaring the daylights out of financial markets around the world.

The money will be available to bailout the economies of countries in the euro-zone, comprised of 16 countries that use the Euro as their common currency. According to the Wall Street Journal, “The money would be available to rescue euro-zone economies that get into financial troubles. The plan would consist of €440 billion of loans from euro-zone governments, €60 billion from an EU emergency fund, and €250 billion from the International Monetary Fund.”

A couple of points: It confirms the seriousness of the situation and the spreading fear about what the crisis would do to  rebound in the economy that was already weak. It also defeats the notion that each European Union nation should manage its own economy. Now every country is responsible for every other country.

At 5:38 eastern the Dow futures are up big, 363 to 10,680. That’s after being down a total of 488 on Thursday and Friday.

So here’s where we are:

On Friday, the S&P closed right on top of its rising 200-day moving average with a 2-day RSI of 2.94. That’s a setup for a big bounce if I ever saw one. And the RSI Reversal Strategy is well positioned to participate.

But beyond a bounce the only thing we can say for sure is that volatility has returned with a vengeance. I don’t trust Monday morning market froth. And even though on Thursday — being called the “Crash of 2:45 pm” — the stock market rebounded from being down almost 1000 points, the truth is that the big sell off revealed inherent weakness in the market.

So let’s look at where we are with our strategies.

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