Date: August 28, 2015

Down 43% and Up 80% All in 12 Minutes. HFT is to Blame.

I am scheduled to be on Fox Business’ Risk & Reward TODAY, Friday, at 5:25 PM. The topic will be a follow up from the two pieces below on my rant after Monday’s embarrassing open as the Dow crashed 1100 points and the financial system was broken.

Flash Crash II – HFT and Computers Run Amok… AGAIN

This was a Flash Crash

Although it was fruitless, I did some more digging to uncover even more inexcusable and unfair trading.

My view remains firm that high frequency trading (HFT) exacerbated the decline, but also led to price dislocations not only in ETFs, but in some very liquid, blue chips stocks. I listed a few the other day, but here is the most egregious ETF one I have seen so far.

I have heard the HFT guys in the media denying any responsibility. What else are they going to say? “Yeah, we raped Mom and Pop Main Street?” What do we hear from Goldman and Credit Suisse and the Wall Street firms? Crickets!

I am far from an expert on HFT, but did enjoy reading Flash Boys by Michael Lewis. I am, however, a guy in the trenches who continues to see our markets unable to handle the speed and systems that have been developed to take advantage of the system’s inadequacies.

What happened on Monday to SPLV, XLV, VHT, JPM, GE, VZ, MCK and probably hundreds more securities was a travesty. It was sad and pathetic and something you would expect from a frontier exchange in Africa or Asia, not from the capital of capitalism!

Markets have calmed down substantially from the panic pace early this week. I wrote about the bottoming process starting as early as this week and that comment was spot on and remains the case. Next week, I will show a few other time periods that look similar to this one. Markets are in the healing process which will eventually lead to appreciation phase again.

I remain steadfast (we’ll see rightly or wrongly so) that the final bull market peak has not been seen. That means I see fresh all-time highs ahead! And I think you will be surprised and probably skeptical at my upside target…

Have a safe and enjoyable weekend!

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Paul Schatz, President, Heritage Capital