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The Bull Market No One Bought

If a bull market happens on Wall Street and no one else buys it, does it really matter?

The S&P 500 Index was up 79.9 percent from its closing low in March 2009 of 676 to its closing high of 1217 posted in late April, making it the fifth biggest bull market since 1960.

Even with this month’s pullback, the index is still up 58 percent from that 12-½ year low. Too bad no one bought it.

Individual investors pulled $20.7 billion from U.S. equity funds from March 2009 to April 2010, according to TrimTabs Investment Research.

“We believe the key drivers of the rally were hedge funds and trading desks, which enjoy access to zero cost short-term funds from the Federal Reserve,” wrote Charles Biderman, Chief Executive of TrimTabs, in a note to clients yesterday.

The enormous presence of hedge funds, proprietary trading desks, and most importantly high frequency computer trading models was evident in the Flash Crash earlier this month, when the Dow lost nearly 1,000 points in a matter of minutes.

Stocks today continued their volatile behavior since that infamous day, surging more than 2 percent in morning trading. The S&P 500 has moved in either direction less than one percent on only five days this month. Either day trading is back big this time or the Wall Street pros are solely in control.

Maybe that’s why there has been such a close correlation between Goldman Sachs and the overall stock market these days. When Goldman weakens, the market weakens and vice versa. If Congress was to separate the proprietary trading arm out of Goldman in this financial regulation bill, who would be left to invest?

Not many, according to Doug Kass of Seabreeze Partners. He estimates that high-frequency trading strategies account for 70 percent of the day’s trading volume these days.

A bull market completely in the hands of speculators doesn’t bode well for its sustainability. “In the late 1990s, retail buying was the key factor pushing stock prices into the stratosphere,” wrote TrimTabs’ Biderman.

According to one of my favorite market factoids out there, Alan Newman, author of the Crosscurrents market newsletter, notes that transactional volume on Wall Street has tripled over the last 11 years, yet zero wealth has been created in equities.

Still Seabreeze’s Kass sees the rise of the market machines as an opportunity. They’ve skewed the real fundamental picture, he said. Kass is optimistic that the more stable mutual fund managers and individual investors will come back into the market soon.

“The outsized and disruptive role of quant trading is providing a short-term opportunity to buy stocks cheaply, and I see the recent week’s action as a precursor to a good rally in equities,” wrote Kass.

For the best market insight, catch 'Fast Money' each night at 5pm ET on CNBC.

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Trader disclosure: On May 27, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Finerman’s Firm Owns (AAPL); Finerman Owns (BAC) & (BAC) Calls; Finerman’s Firm Owns (BAC); Finerman’s Firm Owns (GOOG); Finerman’s Firm Owns (GS) Calls; Finerman Owns (HPQ); Finerman’s Firm Owns (HPQ); Finerman Owns (JPM); Finerman’s Firm Owns (JPM); Finerman’s Firm Owns (PDE); Finerman’s Firm Owns (RIG) & (RIG) Calls; Finerman Owns (RIG) Calls; Terranova Owns (FTO), (STLD), (YHOO), (OIH), (APA), (AXP), (BTU), (SWN), (GLD); Seymour owns (AAPL), (BAC), (F), (GOOG), (RTP), (UNG), (VALE); Adami Owns (C), (GS), (INTC), (MSFT); Grasso Owns (C), (BAC), (JPM), (NDAQ), (BP), (LPX); Edwards owns (VXX); Levy Owns (GS) ; Levy Short (BP) Calls

For Patty Edwards
Edwards owns (AAPL) For Clients
Edwards owns (VXX) For Clients
Edwards owns (MS) For Clients
Edwards owns (JPM) For Client
Edwards owns (BAC) For Clients
Edwards owns (AMZN) For Clients
Edwards owns (GOOG) For Clients
Edwards owns (MSFT) For Clients
Edwards owns (HPQ) For Clients
Edwards owns (YHOO) For Clients
Edwards owns (INTC) For Clients
Edwards owns (NVDA) For Clients
Edwards owns (CSCO) For Clients
Edwards owns (QQQQ) For Clients
Edwards Owns (BP) For Clients
Edwards Owns (C) For Clients
Edwards Owns (COP) For Clients
Edwards Owns (COST) For Clients
Edwards Owns (CVX) For Clients
Edwards Owns (DO) For Clients
Edwards Owns (F) For Clients
Edwards Owns (JPM) For Clients
Edwards Owns (LCC) For Clients
Edwards Owns (MS) For Clients
Edwards Owns (NE) For Clients
Edwards Owns (PDE) For Clients
Edwards Owns (RIG) For Clients
Edwards Owns (SLB) For Clients
Edwards Owns (TOT) For Clients
Edwards Owns (VXX) For Clients
Edwards Owns (XOM) For Clients
Edwards Owns (YHOO) For Clients
Edwards Owns (SPX) For Clients
Edwards Owns (QQQQ) For Clients
Edwards Owns Gold For Clients
Edwards Owns Platinum For Clients
Edwards Owns Silver For Clients

For Jared Levy
Peak6 investments owns and has an options postion (GS)
Peak6 investments is short and has an options postion (MS)
Peak6 investments is short and has an options postion (DB)
Peak6 investments owns and has an options postion (JPM)
Peak6 investments owns and has an options postion (CS)
Peak6 investments owns and has an options postion (BAC)
Peak6 investments owns and has an options postion (UBS)
Peak6 investments owns and has an options postion (C)
Peak6 investments is short and has an options postion (XLF)
Peak6 investments is short and has an options postion (AMZN)
Peak6 investments owns and has an options postion (AAPL)
Peak6 investments owns and has an options postion (YHOO)
Peak6 investments is short and has an options postion (EBAY)
Peak6 investments is short and has an options postion (GOOG)
Peak6 investments owns and has an options postion (MSFT)
Peak6 investments is short and has an options postion (HPQ)
Peak6 investments is short and has an options postion (DELL)
Peak6 investments owns and has an options postion (ADBE)
Peak6 investments owns and has an options postion (BP)
Peak6 investments is short and has an options postion (RIG)
Peak6 investments is short and has an options postion (HAL)
Peak6 investments is short and has an options postion (CVX)
Peak6 investments is short and has an options postion (XOM)

David Hilal
FBR Capital Markets is a Market Maker of (MSFT)