“The capital raising stock market of the past hundred years has morphed in just the last 10 years into a casino,” said Sal Arnuk of Themis Trading and a market infrastructure expert who advised the SEC after last year’s so-called Flash Crash. “Who is doing the fundamental work analyzing stocks? In the end, we’ve greatly increased systemic risk.”
Another factor jumped into the fray in December: dark pools. Off-exchange trading accounted for more than a third of the trading volume in December, says Raymond James. While these trades are eventually reported to the public markets, they further damage price discovery, an essential element for a fair securities market, investors said.
“This was a record high market share for off-exchange trading and we believe the SEC will ultimately be forced to react to support the price discovery process by limiting off-exchange trading for all traces except for large block trades,” wrote Raymond James analyst Patrick O’Shaughnessy in a note to clients yesterday.
“This destroys capital markets,” said Jon Najarian, co-founder of TradeMonster and a ‘Fast Money’ trader. “Hidden trading venues, where some participants get to peek at the orders as they are entered so long as they agree to ‘interact’ with a minimum percentage, is not an exchange, it’s a license to steal.”
While many see these forces aligning to cause a sort of self-correcting powerful drop in the market down the road, others feel like it’s creating an opportunity for the stock pickers to mount a comeback.
At the end of last year, something strange happened. After tracking the S&P 500 for most of 2010, the Russell 2000 Index, made up of many small companies with very different characteristics and merits, broke away in the final three months to double the gains of large cap benchmark for the year.
“Small cap outperformance in the last quarter is a very good sign this trend is ending,” said Joshua Brown, money manager and author of The Reformed Broker blog. “Winners and losers are starting to separate themselves after a year of the whole risk-on (buy anything), risk off (sell everything) of the last year.”
Of course, you could have just bought the iShares Russell 200 Index ETF in September.
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Trader disclosure: On January 4th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Seymour owns (AAPL); Seymour owns (BAC); Seymour owns (F); Seymour owns (FXI); Seymour owns (GE); Finerman's firm is short (IJR) ; Finerman's firm is short (MDY); Finerman's firm is short (SPY); Finerman's firm is short (IWM); Finerman's firm is long S&P puts; Finerman's firm is long Russell 2000 puts; Finerman owns (AAPL); Finerman owns (BAC); Finerman's firm owns (BBY); Finerman owns (BP); Finerman's firm owns (BP); Finerman's owns (GOOG); Finerman owns (HPQ); Finerman's firm owns (HPQ); Finerman's firm owns (IBM); Finerman owns (JPM) and (JPM) leaps; Finerman's firm owns (JPM) and (JPM) leaps; Finerman owns (MSFT); Finerman's firm owns (MSFT); Finerman's firm owns (WMT); Finerman's firm owns (FCX) puts; Terranova owns (GM); Terranova owns (C); Terranova owns (VRTS); Terranova owns (UPL); Terranova owns (PEP); Terranova owns (OXY); Terranova owns (GS); Terranova owns (SLW) puts; Terranova owns (GLD) puts; Cortes is short Gold; Cortes is short Corn; Cortes is long USD vs. the Yen; Cortes is short (LVS); Cortes is short (BCS); Cortes owns (TSN); Cortes owns (EXC); Cortes is short (XRT) vs. the S&P; Cortes is short (XHB) vs. the S&P
For Brian Kelly
Accounts Managed By Kanundrum Capital Own (BBT)
Accounts Managed By Kanundrum Capital Own (DRYS)
Accounts Managed By Kanundrum Capital Own (FCX)
Accounts Managed By Kanundrum Capital Own (GLD)
Accounts Managed By Kanundrum Capital Own (JPM)
Accounts Managed By Kanundrum Capital Own (MCP)
Accounts Managed By Kanundrum Capital Own (MON)
Accounts Managed By Kanundrum Capital Own (MS)
Accounts Managed By Kanundrum Capital Own (SLV)
Accounts Managed By Kanundrum Capital Own (TM)
Accounts Managed By Kanundrum Capital Own (WFC)
Accounts Managed By Kanundrum Capital Own (TBT)
Accounts Managed By Kanundrum Capital Own USD
Accounts Managed By Kanundrum Capital Are Short The Euro
Accounts Managed By Kanundrum Capital Are Short The Yen
For Joe Terranova
Terranova is Chief Market Strategist of Virtus Investment Partners, LTD
Virtus Investment Partners Owns More Than 1% Of (ABAX)
Virtus Investment Partners Owns More Than 1% Of (AMKR)
Virtus Investment Partners Owns More Than 1% Of (CCG)
Virtus Investment Partners Owns More Than 1% Of (CASS)
Virtus Investment Partners Owns More Than 1% Of (CSVI)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (FCFS)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (KRC)
Virtus Investment Partners Owns More Than 1% Of (LDR)
Virtus Investment Partners Owns More Than 1% Of (LPHI)
Virtus Investment Partners Owns More Than 1% Of (NCRI)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (XLV)
Virtus Investment Partners Owns More Than 1% Of (XLP)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (XLE)
Virtus Investment Partners Owns More Than 1% Of (XLI)
Virtus Investment Partners Owns More Than 1% Of (XLK)
Virtus Investment Partners Owns More Than 1% Of (XLU)
Virtus Investment Partners Owns More Than 1% Of (SUBK)
Virtus Investment Partners Owns More Than 1% Of (WDFC)
Virtus Investment Partners Owns More Than 1% Of (YDNT)
Virtus Investment Partners Owns More Than 1% Of (CLB)
For Chris Whalen
Whalen has no disclosures
For Chris Whalen SOT
Whalen had no disclosures on 1/3/2011
For James West
Funds managed by James West are long gold
Funds managed by James West are long oil
Funds managed by James West are long silver
For Colin Gillis
Gillis has no disclosures on (GOOG), (YHOO), (AAPL)
For Gene Munster
(ROVI) Has In Past 12 Months Been An Investment Banking Client Of Piper Jaffray
Piper Jaffray Is A Market Maker In (ROVI)
(ACOM), (DRIV), (LOGM), (RLOC) Are Or In Past 12 Months Have Been Investment Banking Clients Of Piper Jaffray
Piper Jaffray Expects To Have (DRIV) As Investment Banking Client In Next 3 Months
Piper Jaffray Does Underwriting For: (ACOM), (DRIV), (RLOC)
Piper Jaffray Received Non-Investment Banking Securities-Related Compensation In Past 12 Months For (DRIV)
Piper Jaffray Is A Market Maker In (AAPL), (ACOM), (AMZN), (BIDU), (DRIV), (EBAY), (FMCN), (GOOG), (GSIC), (IACI), (KONG), (LOGM), (MCHX), (MELI), (PRTS), (RLOC), (SINA), (SOHU), (VCLK), (WWWW), (YHOO)
For Scott Nations
Nations has no disclosures
For Josh Brown
* Disclosures Pending
SOTS
Tim Seymour had no disclosure in (BP) on 11/29/2010
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