MW

Lightspeed Financial Acquires Exclusive License to Operate Anvil Professional Trading Platform. Deal Strengthens Lightspeed’s Competitive Position in Active Trading Market

NEW YORK, June 22, 2010 – Lightspeed Financial, Inc., a leading provider of ultra low latency direct market access (DMA) trading technology, risk management solutions, and brokerage services for retail active traders, professional trading groups, hedge funds, and algorithmic “black box” firms, today announced that subject to the satisfaction of certain conditions it has acquired a perpetual license to the Anvil trading software currently available only through Assent LLC.  The licensing agreement is part of an ongoing effort by Lightspeed to fortify its position as the active trading industry’s premier operator and the leading acquirer of trading businesses. Terms of the transaction were not disclosed.

Assent made public in April its plans to exit the professional-trading business and discontinue operating the Anvil trading platform.

“We continue to grow our business organically at a steady pace while at the same time assessing the competitive landscape to identify strategic combination’s, which can help us capture an even greater share of market as we build an enduring company and establish Lightspeed as the preeminent home for professional traders,” said Stephen Ehrlich, Chief Executive Officer, Lightspeed Financial, Inc. “The license to operate Anvil was a perfect fit for Lightspeed.  It enhances our ability to offer professional trading clients ultra low latency market data and executions, a business we have been successfully servicing for years. This transaction is a validation of our leading position in the professional trading arena.”

The exclusive licensing deal for Anvil represents the fifth successful transaction that Lightspeed has made in the active trading space since its inception nearly four years ago and its third deal this year. Past transactions include the acquisitions of retail trading firms Schonfeld & Company, LLC, Integrity Trading Inc, NobleTrading, and Terra Nova Financial, LLC earlier this month.

Ehrlich noted that the licensing deal could, when effective, bring the total Lightspeed client base to more than 7,500 traders who could execute over 220 million equity shares per day with total client assets exceeding $1.35 billion.

About Lightspeed Financial, Inc.

Headquartered in New York City, Lightspeed Financial operates through three wholly-owned subsidiaries:

Lightspeed Trading, LLC operates as a fully disclosed introducing broker-dealer and FINRA and NFA member. The Company offers securities and direct access brokerage, trading and advanced order routing services to their clients utilizing Lightspeed’s software products.

Lightspeed Technologies, LLC serves as the Company’s technology development subsidiary. Lightspeed develops and operates Lightspeed Trader, Lightspeed’s Direct Market Access trading software application; Lightspeed Gateway, Lightspeed algorithmic trading offering; Lightspeed Risk, a real-time risk management application; and Lightspeed Admin, Middle Office Technology suite. Utilizing a number of proprietary technologies, Lightspeed offers these products and more to broker-dealers, institutional entities and professional traders.

Lightspeed Education, LLC delivers educational products to the Lightspeed Trading, LLC customer community. These products include third party educational tools, webinars and the Lightspeed Spotlight social community. www.lightspeed.com

Lightspeed Financial, Lightspeed Technologies, Lightspeed Trading, Lightspeed Education and the Lightspeed logo are trademarks or registered trademarks of Lightspeed Financial, Inc.

© 2010 Lightspeed Financial, Inc. All rights reserved.

Press Contact:

Mike Boccio

Sloane & Company

(212) 446-1867
**End of Press Release

Now, back to what I was saying, with one point of clarification, and that was the Assent/Anvil deal structure.  Assent is in fact being wound down apparently, but The Anvil platform lives on to see another day. That’s great news for traders and crowns Lightspeed as the industry’s “de facto” roll-up player. Quite an impressive feat for a small private company to be on a roll-up strategy of trading platforms and trading firms, which now allows it to reach over 7,500 traders and generate over 220 million shares per day.

Good news or bad, Lightspeed Financial has been implementing a roll-up strategy since their acquisition of Schonfeld, which gave them Lightspeed, which itself used to be eTrade’s proprietary trading platform which Schonfeld had purchased way back in the day. Not only has Lightspeed acquired Terra Nova Financial, which gives them the all mighty “Real Tick” platform, but they’ve also acquired a “perpetual license to The Anvil.”   Both Real Tick and The Anvil were pioneer software platforms in the early days of electronic trading, when it was still the wild west; and the the equivalent of today’s High Frequency Traders were SOES Bandits.

Being on the inside of this business gives one a certain “dial” into the street buzz, which let us scoop even the Press Release by about 3 or 4 days. Not bad for a tiny blog. (Even though we got one small piece of it wrong, there are parts of  the transaction which I won’t even disclose to you!)

With regards to myself and the firm I’m associated with,  anyone who wishes to use LightSpeed as a trading platform can do so for NO monthly fee. Instead, LightSpeed will assess a charge of .0006 cents per share for use of their software. It has always been one of the more expensive platforms, but if one learns all the capabilities of Lightspeed, including how to customize and optimize the built-in execution algorithms, and the powerful basket functionality and ease of modifying the layout, it’s well worth the added cost and if you are doing less than 400,000 shares per month, the additional charges are trivial. Even though they recently upgraded Lightspeed’s charting capabilities, I would say they’re still in the dark ages when it comes to analytics, but that’s possibly what makes it such a lightning fast platform.

The heavier the analytics, the heavier the installation package and therefore the slower your system will run.  I’ve always separated my charting from my trading, putting each on a different machine.  This allows me to use a lightning fast execution platform while also using a professional but heavy charting package like Metastock Pro with Quote Center by ThomsonReuters.  Don’t go for the eSignal version of MS Pro because their data sucks. Excuse my French but that’s really the best way I can describe eSignal. The worst charting platform ever invented, which I wish would just die a slow death and go away.

So, back to our little math problem, if you are doing 400,000 – 600,000 shares per month… it’s a judgment call. One platform over the other for almost the same monthly cost… Hmm, In this situation, I’d go with the superior platform, which is by far Lightspeed or Anvil. For a little extra, go for Real Tick. That little extra will be saved on the back end when you no longer have to pay for such a piece of trash like eSignal and their totally unreliable data and third rate technical analysis capabilities. You won’t even need a professional platform like Metastock because Real Tick’s charting capabilities are professional grade and I’ve always loved using it.

As long as you learn how to use any platform you chose like a pro without being a key pushing monkey (i.e. retail day trader perpetually gross positive while always net negative at the end of the month), you should be alright, even with a “P.o.S” like Sterling Pro, which I think to be the most inferior trading platform available today, and if it wasn’t for the fact that it’s the lowest cost option, and has access to the most execution outlets, and the API is easiest to write to, I wouldn’t trade a discretionary or market-neutral strategy involving baskets or otherwise on Sterling even if you put a gun to my head, that’s how much I hate it. But if you’re a black box quant and need an easy API and as many execution outlets lit up at the lowest cost possible, then Sterling it is, even though it pains me to admit that.

Above 600,000 shares per month and it stops making economic sense.  The added cost of .0006 cents per share for Lightspeed per share, or the monthly cost of Real Tick,  could eventually offset the superiority of these platforms over a generic platform like Sterling Trader (not sure of the added cost, if there will be any, for the use of The Anvil and how it will be structured: whether per share like Lightspeed or a flat monthly rate like Real Tick).

But stay tuned as our MarketWizard keeps you dialed into the market’s buzz, all the way from sunny Irvine, Ca. where the sun doesn’t stop shining and the girls only where their swimsuit tops while rollerblading the broadway at the beach, all day long, sometimes stopping in for a drink or two before taking off again, without even telling me her name, just handing me her number…

Let me know when you’re ready to make the switch to 20 cents per 1000 shares and 75% payouts and I’ll gladly make the introduction.  Just email me at the following address:    Pej   (at)   InvestmentCapitalist   (dot)  com  (pardon the weird spelling of the email but it prevents the spammers from picking up the address and flooding me with Viagra adds and cheap auto insurance loans offers)

Once Facebook opened up its marketing platform to developers and the widget was born as a cheap marketing and branding tool, entrepreneurial endeavors became accessible to all 6th grade level programmers . Then came the Apple iPhone and its gazillion applications.  The Facebook and Apple platforms enable anyone to create social applications which allow users to interact with their friends or a particular business. With many deep integration points, platform applications are effective ways for a business to leverage the social graph in ways unimagined until now. This bold move turned Facebook, and possibly the iPhone, into primary ‘storefront’ applications for business’s, allowing small companies to create a dynamic online presence for their customers. 

So when Microsoft threw out $240 million for a 1.6% stake, thereby valuing Facebook at $15 billion back in ’07, it was one of Bill Gates’ shrewdest investments, even though it took a while for the so-called experts to in fact ‘get it’. Not only did this keep Facebook out of the hands of Google, but more importantly, had Google swallowed up Facebook, it would have changed the dynamics of competition between Microsoft and Google so heavily in favor of Google that it could have forced Microsoft to accept defeat in search engine marketing sometime down the road.  

Earlier that year, when Google swallowed up DoubleClick for $3.1 billion in April, it also got a superb deal mainly because of the way Google has been able to integrate DoubleClick into its’ Adsense and Adwords platforms. Absolutely seamless, very easy to use, and a category killer for domain name parking. Why go through an intermediary to park your domain when you can go straight to the source and make more money? Most domains don’t even look parked these days. For example:  www.CureThis.com is a full web site parked by a company called DevHub! However, when Google parks a site, there are no bells and whistles, it’s quite obvious the site is parked. For example, take a look at www.ShopBestMortgage.com or www.FlashVirtual.com.  Both of these sites are parked with Google. However, even with the very simple look, many studies have shown that simplicity like that creates the greatest return. It’s just a matter of getting the site indexed and showing up on searches.  Even my nickname is parked at www.MarketWizard.us with an entirely different template. About five years ago, domain parking was for the uneducated masses trying to get lucky. Now it’s becoming a strategic asset.

In May of 2007, Microsoft’s $6 billion purchase of aQuantive for a massive 85% premium, and Yahoo’s “me too” buy of Right Media for $680 million, were both in response to Google’s acquisition of DoubleClick. It’s quite true those acquired by the latter two giants were players engaged in BT (Behavioral Targeting) since at least 2004, however, the marriage of a search platform with the largest banner ad serving network for publishers has blurred the line between service provider and competitor. The major online players appear to be declaring a head on war with the old school Madison Avenue companies, although WPP of London appears to be with the curve following their acquisition of 24/7 RealMedia in May of 2007, which seems to have worked out quite profitably for them, especially for clients that want a “one stop shop”. As the next evolution of the internet gets underway, the concept of “Long tail theory” is all of a sudden a part of every ad executive’s vocabulary.

Now entering the fold is Apple’s iPhone and iPad, both of  which have access to Apple’s “App Store” where they can download thousands of applications which makes the concept of behavioral tracking even more granular, even though this concept has not yet grabbed the attention of the blogosphere or the press.  With the app store, Apple can track, at a very granular level, the way their customers behave, without even having a web presence.

The iPad alone is a major game changer and will allow computing at a level never before imagined. The response to the iPh0ne and iPad is Google’s Android open source platform, which has been catching on quite rapidly, although in term of the number of app’s available for Android relative to Apple’s iPhone is pathetic. It’s like David and Goliath in this match, and Google is David.

Google’s advantage lies in their dominant market share of search traffic. By tracking the user through his or her I.P. address, Google is cataloging and mining a mammoth database of user behavior. DoubleClick on the other hand tracks the user by placing a cookie on their computer. Combine the two and you have a full profile of most internet users at an individualized, highly granular level. Anonymous or not, that’s highly valuable information. And it put Google in a position of incredible advantage.  I hope they maintain their “Don’t do evil” mantra.

Google will always have to walk a tight line, similar to bumps in the road eBay faced as it was on its way of becoming the largest original user generated content (UGC) site. When eBay would make a management decision at the executive level, the repercussions in the event their user base disapproved were almost immediate. Google is walking this same line, and I believe the boys at Google headquarters are smart enough to realize that as long as they continue to innovate and provide useful services at zero cost to the consumer, they will retain their user base.

Recently, for example, I found a “Transliteration” tool in Google Labs, where I look quite often for really cool toys in pre-Beta or just toys that will never see the light of day via an actual release. The transliteration tool is beyond cool. It allows me to type in English, and transliterates it into one of many languages from which you can choose, so that when the reader reads the message, they are reading it in their native alphabet but they are sounding out the English word.  It’s just like foreigners communicating via email in their home tongue but using the English alphabet by sounding out the words. Except Google has reversed this. So a user can type “Hello my name is Bob” in Persian, or Hindu, and it will type it out in that language but when read will sound like “Hello my name is Bob”.

It’s these kinds of innovations that keeps Google miles ahead of the competition, while also watching the competition for any fatal mistakes, which hasn’t happened yet with Apple and its iPhone. Moreover, the launch of Android as an open source system whereas iPhone is closed could be an area to keep an eye on. Who will win this war? Apple fought this once before against IBM/Microsoft and lost. But this time, it has the advantage. They are way ahead on user saturation and their product is cool in many aspects. But I digress…

For now, if a user visits any major site on the Internet where DoubleClick is serving ads, and the user got there using Google search, or any search engine for that matter, even Microsoft’s Bing, Google knows where the user came from, when the user was on other particular sites, where the user went after leaving the site and what the user bought.  This allows them to serve an ad at a later time customized for that user based on this data. Google is certainly at an important juncture and must find ways to continue growing revenues. This means that Google and all of the other major online players must expand beyond text-based search. Hence, the iPhone and Android.

Web communities such as LinkedIn, MySpace and Facebook (and dozens of others popping up everywhere) have brought like-minded people together all over the world into hyper-niche verticals that continually optimize themselves through rapid evolution. From the advertiser’s (or Politician’s) perspective, each new social networking platform becomes a doorway to whatever psychographic and/or demographic being sought. All the old fuss about “monetizing the social network” is being addressed by technology delivering user specific ads to web site visitors customized for that visitor, whereas the next visitor or a visitor at the same time to the same page for that matter, is seeing an entirely different advertisement.

This new “socialization” of the web brings together multiple niche communities with similar interests. Even though I have a Facebook profile and spend time on the site, it doesn’t necessarily mean that I also like the same things as my other Facebook friends. “New” media marketing is all about serving highly relevant ads to every single user on the site.  I can’t figure out why ALL of the ads I get on my Facebook are for half naked single women desperate to meet guys. It makes no sense but I like the pictures. 

Advertisers no longer monopolize a specific time zone or TV network. At any given time, if there are 100,000 unique visitors on a web site, and 10,000 of them are on the same page within that site, one could in theory serve 10,000 different ads from unique advertisers at the exact same time, all of them customized based on the users “web print”.

Although behavioral targeting has thrived by allowing marketers to offer ads customized based on the web surfer’s age, gender, location and online activities, in the immediate future not only will those variables be considered, but also the items the user may have been shopping for recently.

For example, imagine you have searched for a specific bottle of wine from a shopping web site in the past couple of weeks, and were now on your favorite news site reading an article about foreign affairs. At the end of your article, you might see an ad from a wine merchant for that exact same bottle of wine “on sale”. Now that’s helpful to the advertiser and the consumer.  It is RELEVANT and that’s the point. We’re a nation of consumerist pigs. But the net-net means the advertising network is tracking every single web user, although anonymously of course, in a way that continually allows them to “guide” users to products that meet their real time interests. The convenience factor lies in that last term, “real time interests”. But so does the “creep” factor for some, or “Big Brother is watching”.

Back to our example, say you visited the site but chose not to purchase anything. Tomorrow when you log into your Gmail account to check your email, you may find a digital coupon created just for you by a competing merchant offering the same product at a 10% discount. This is “long tail” marketing at its finest. And hey, you just saved 10%.  It’s a win-win.

The combination of statistical text analysis and clustering methodologies with semantic analysis procedures creates an outcome that can be different each time depending on multiple variations of subjects, keywords, and the unique relationships between them. In other words, each users screen becomes a dynamic megapixel billboard.

The natural evolution of this technology will be based on smarter and smarter algorithms that will be able to predict the potential buying habits of a shopper based on their behavior during certain days, seasons, local weather, and just about any data point you can imagine, including the performance of stocks they looked up recently on their favorite finance site and their interactions with their friends on other social networking sites.  Contextual advertising is for those of us that have learned to subconsciously tune out banner ads when viewing a site.

In the future, when this technology eventually merges with the television, or when the television doubles as your computer, then the really cool, highly targeted stuff begins to happen. Imagine Tony Soprano sitting in front of his white Cadillac while doing peyote in the desert during the shows closing episode drinking a can of coke (which he was by the way). That can of diet Coke is there for brand awareness and probably cost Coca-Cola several million dollars.

With advanced B.T. combined with contextual advertising, online advertisers could swap out the diet coke for a can of Budweiser, or a bottle of water, or even a carton of orange juice depending on what that viewer buys when they go grocery shopping, which Church web site they may have visited, or nutritional supplements they have purchased.  What’s a can of diet Coke worth to a viewer that hates soda? NOTHING! But how about a viewer that always buys Fiji Water? Instead of a diet Coke in Tony’s hand, there’s a bottle of Fiji water for that viewer. Bingo. Customized branding at the individual level. Now how amazing is that for advertisers? Not a dollar wasted. You only pay for what is displayed, or “served”. Nothing else.

Although this is not yet possible for video, if you tune out the banner ads when reading up on a geopolitical situation that you’ve been following recently, the words within the articles become active hyperlinks to products and items you are interested in. As an avid reader, I am thrilled when reading a very interesting article on the web which is embedded with hyperlinks to books being recommended by Amazon. It doesn’t bother me to read the word as a hyperlink and I can read through or hover my mouse over the link to see what the book is. It’s my choice. Furthermore, some words may hyperlink for me while other words will hyperlink for other readers based entirely on that reader’s interest. This is the maximum level of efficiency an advertiser can achieve when targeting a consumer but for the publisher’s of the world, this is absolute heaven.

Publishing is all about creating quality content that people will want to read, thus giving the publisher advertising inventory to sell to merchants interested in that audience. By turning every word in their content into a potential ad slot, publishers can benefit from having knowledge of real-time market prices for certain keywords and can tune their sites to favor certain keywords over others. This is made possible by the anonymous auction systems being used for clearing ad inventory.

The economic opportunity is staggering. Total ad dollars spent via online platforms are still in the single digits, and as the pie shifts in favor of the web thanks to social networks and other UGC sites, the market opportunity for smart players is significant. Think of the recent quarrel between Google and China. China’s total ad spending on line for all of 2009 was $1 billion. That’s really pathetic for the nation  with the largest population in the world and merely a drop in the bucket; hence the stratospheric rise of Baidu (BIDU), the Chinese Google. This is a politically motivated move by the Chinese Government to make sure one of their own wins this market and not an American company that can ultimately track the web use of every Chinese on the Internet, censorship or not.

The world of consumer marketing is about to experience what Andy Grove, the former Chief of Intel termed, a “Strategic Inflection Point” . The fight between old and new basically comes down to the difference between a major consumer brand such as Gillette, Honda, or Budweiser spending $50,000,000 on a television commercial campaign during the Super Bowl, versus spending 10% of that amount on the web to achieve significant conversion rates from eyeballs to sales.

The days of “branding” by shot-gunning a company’s name in front of the consumer are being challenged by the wonderful opportunity to market directly to the person actually looking for a product on the web from the company they want it from, at the exact moment they are searching. Yes a bit Orwellian, but once we get beyond the “novelty” effect, we will realize that this is another downward pressure point on inflation as it encourages competition and achieves efficiencies that will allow merchants to lower their prices for consumer goods in general.

Although opponents are banging the privacy drum based on discrimination, this movement away from carpet bombing the consumer to laser guided bombing should improve the quality of the Internet for everyone. Right now, the total amount of spam sites all over the internet are overwhelming even the smartest search algorithms. Criminal elements in Eastern Europe and Asia continually find ways to beat the anti-spam efforts of the search giants.

When people accuse Google of not caring about click fraud, they are being naïve and overly simplistic. If users stop trusting Google to provide relevant information, they will search elsewhere. It’s very easy to change your default search engine. The shift to performance based marketing based on anonymous behavioral profiling of web users will put upward pressure on keyword costs in a way that will filter out the spam sites most likely auto generated in a few minutes.

This also benefits Internet marketing companies by streamlining the process of dealing with the ad networks and giving them access to quantitative data for analytic purposes. Google Analytics is an incredibly powerful tool for tracking and measuring a sites’ user base. And best of all, it’s FREE.

Keep an eye on the next wave of acquisitions by the major players. ValueClick (VCLK), one of the few remaining independent behemoths focused on “Cost-Per-Action”, is likely to go next for a price in the single digit billions.  As the Yahoo and Microsoft search partnership evolves, Google will be keeping a close eye on their share of the search market. If it starts to drop, you’ll see a big move by Google to raise the stakes. RevenueScience and Tacoda (now owned by AOL) will be eyed by Madison Avenue firms circling their wagons and looking for bolt-on acquisitions as a chance to survive another wave of Creative Destruction. To Joseph Schumpeter, this type of Creative Destruction must be a blast to watch from above.

And as for the privacy concerns, in 2006 the ChoiceStream Personalization Survey polled consumers asking them if they would be willing to let websites track their clicks and purchases. There was a 34% increase from 2005. If we are going to see the ads, they may as well be highly relevant and actually save me money and make my life better. I just don’t want to see them use this data to link a pattern of behavior, such as cross-campaign learning, to infer private information such as a person’s health. On the other hand, if I don’t have a cat then I don’t want to see ads for cat food.

I know many of you are Prop. Traders, whether equities or swaps or paper, or whatever. It doesn’t matter. The forum is to exchange ideas and share trades and various perspectives from highly qualified and advanced traders around the world (including myself, of course).  It goes without saying that if your LinkedIn Profile indicates you are a recruiter, or unrelated to content of the group, your request to join will sadly but most assuredly be declined.

With that being said, I invite you to join Discretionary Proprietary Traders Worldwide

prop trading, proprietary trading, prop traders, prop, T3 Live, First New York, FNY, Millenium Partners, SMB Capital, discretionary trading, traders, trader, trading seats, Hold Brothers, Hold, Avatar, Avatar Securities, Scott Redler, T3 Partners, T3 Partners LLC, Sean Hendelman, Marc Sperling, Laz, Sperls, Red Dog, RBC, RBC Capital, RBC Professional Traders Group, high volatility, high frequency, high frequency/high volatility, global macro, incremental capital, dimension, cash equities, stock trading, leveraged trading, scottrade, ameritrade, Valez Capital, Pristine, chart patterns, technical analysis, protrade,

---

Week of October 20th: The week when SNL signalled a market bottom.

Start accumulating positions:

Daily: logarithmic illustrating cup & handle with dominant raff regress. channels, pitchfork and multiple positive divergences in momentum and money flow. Handle taking characteristics of FLAG consolidation with volume almost totally gone. Expect volatility burst. Long stock. To add some gearing to trade: Sell some puts and buy calls.

AAPL- 123

POT- 115, 124 (SAR), 129/30, THEN to 160 (a.z.)

SDS- 94 to 85 (Fib support 107, 100)

Monday Morning:

Close out long positions, reverse position SDS, LONG SKF. HOWEVER, do not expect gap closing. More like partial retracement then rally to new highs. Looking at a 500-600 point 1 day rally. Calculate fib retrace levels on intraday. Buy size in UYG on retracement into gap.

SKF Fib support levels: 151, 137. MA convergence alpha zone $120

Long QLD a.z. = 54-61, SSO target 40-42

FIG: unwind victim!!

FITB: CALLS

NOV: forced selling done. INCREDIBLE VALUE here. OIH’s could rally 50% (again, maybe wait until Tuesday)

BIDU- High BETA bounce, GOOG could test 400

CE: German chemical co..

ISRG: re-short $270 (?)

SQNM: At 200d-EMA

CRM (should go to new a.t. High), DE &/or CAT (infrastructure plays), GS, JPM, JRCC, MS (last chance under $10?), BBT, BK, BX, WFC

MA (150 is 2/3 retracement but still gap at $75)

C back to $23

DHIL: major oppty or something wrong?

Rally to be led by commodity & financial names. Big Cap tech will also show leadership.

CLF- at major alpha zone (25-30)

FCX

Futures up 29 handles.

Recap prior week- Tough week, amazing numbers on Friday. 1000 point snap back and u were downstairs. It’s ok, you were forgiven for karma errors on Tuesday and you will have a +$75,000 week this coming week. The market is going to bounce from this low we put in, but we probably head lower later in month. This is to be an oversold rally. There will probably be new lows in this downtrend.

During the prior down leg, the TRIN was constantly hitting 4.0 to 5.0. This time, during down leg, TRIN was constantly below 1.0, around 0.35 – 0.75. Bizarre.

INDU: 9750 (a.z). 9400 (50%), 9050 (38.2%)

Dow INDU Fib projections nailed these intraday extreme swing pivots. Lower boundary of d/t channel broken. Prices should and likely will recover this lower boundary and resume longer term downtrend. At a minimum, an attempt will be made.

Trend from 1990 to 2007 Top. A 9 Sigma move which equals the ’99 high projects a downside target for the Dow of 6900 by December or 6830 in November, hitting alpha zone (see monthly chart).

Short Term Target: 10500

Intermediate Term: 11850 (alpha zone)

200m-EMA = 8917

NDX upside 1900. Swing position in 2x Q’s.

OEX has tested 2002 low. Could bounce to 490-500

Oil index could have huge oversold rally. DIG, CNX, AGU, APA, EOG, EP wait until later in the week for all energy plays….

Small cap stocks put in confirmed 1 day reversal. Which ETF???

VAY: Value Line Arithmetic Index: Upside targets = 1750 then 1950

XBD: Broker/Dealer Index. 1-day reversal. Unlikely Monday’s gap will close soon. Find leaders. Could rally 50% or more in a few days.

On Friday, Marc was down $180,000 and in the last hour made a comeback of $320,000. That’s why I’m a trader. That is why I trade.

HANG SENG Target: 11,000 (c.p `14,000). Establish short china when bounce ending…a.z resistance at 20,500 & 24,000

- Barron’s discusses the bottoming process, saying ‘this could end up being one of history’s quintessential buying opportunities.’ Barron’s lists 25 picks in three categories. Big cash rich companies: XOM, MSFT, AAPL, INTC, DELL, EBAY, MOT, YHOO, ERTS, L. Smaller cash rich companies: NVDA, BRCM, NOVL, IACI, KBR, RNWK, NTE. Industrial Stocks on sale: CAT, CMI, DE HON, ITW, PCAR, TEX, UTX.
- Barron’s looks at master limited partnerships as an investment. MLP’s, which invest in sought-after assets such as oil fields and natural-gas processors look inexpensive and carry double-digit yields. Five MLP’s to look at are Enterprise Products Partners (EPD), Energy Transfer Partners (ETP) Boardwalk Pipeline Partners (BWP), Paso Pipeline (EPB), and OneOK Partners (OKS).
- Barron’s Commodity Corner says silver looks ready to rally. The ‘poor-man’s gold’ is off 46% from a mid-July high but it may take off in the wake of safe haven buying in gold as investors look for a cheap alternative.

A moment of reckoning for many hedge funds may come at the end of this month, when their exposure to credit default swaps must be “marked to market” to reflect the increased obligations at the end of the third quarter.

Olivant, the investment group run by former Abbey boss Luqman Arnold, revealed last week that its 2.8% stake in UBS was held through an account at Lehman in London which the firm’s administrators are refusing to release.

Oct. 3 (Bloomberg) — Maverick Capital Ltd., Greenlight Capital LLC and The Children’s Investment Fund Management LLP fell more than 12 percent in September as stock hedge funds posted record monthly losses and braced for client defections. Lee Ainslie‘s Maverick Capital declined 19.5 percent and Greenlight Capital, run by David Einhorn, was down 12.8 percent, according to investors in the New York-based funds. Children’s Investment, overseen by Chris Hohn in London, fell 15 percent, based on a preliminary estimate.

Stock hedge funds fell an average of 8.6 percent in September, the biggest one-month loss since Hedge Fund Research Inc. began collecting data in 1990. While that was better than the 12 percent decline by the MSCI World Index, a benchmark for global stocks, industry analysts expect investors to increase their requests to pull money from funds. The poor performance of certain hedge funds will have repercussions in the allocation processes, and it may lead to substantial shifts between hedge-funds strategies and between hedge funds.”

Other managers with above-average losses for the month included Stephen Mandel, whose main Lone Cypress fund in
Greenwich, Connecticut, fell 14.7 percent. New York-based Third Point LLC, run by Daniel Loeb, dropped 11 percent. Officials for the hedge funds declined to comment or didn’t return calls.

Defensive Doesn’t Work

Funds in all investment categories fell 6.9 percent in September, according to Hedge Fund Research’s Global Hedge Fund Index. That’s the worst month for the $1.9 trillion industry since August 1998, when the Russian debt default triggered the collapse of Long-Term Capital Management LP.

Key Problems:

• LIBOR bid only, no offer.
• Commercial paper market shut down, little trading and no issuance.
• Corporations have no access to long or short term credit markets — hence they face massive rollover problems.
• Brokers are increasingly not dealing with each other.
• Even the inter-bank market is ceasing up

The Treasury Tarp plan is an irrelevance if we are at a major funding crisis.

We are indeed at the cardiac arrest stage and at risk of the mother of all bank and non-bank runs as:

-The run on the shadow banking system is accelerating as: even the surviving major broker dealers (Morgan Stanley and Goldman Sachs) are under severe pressure Morgan losing over a third of its hedge funds clients); the run on hedge funds is accelerating via massive redemptions and a roll-off of their overnight repo lines; the money market funds are experiencing further withdrawals in spite of government blanket guarantee.

-A silent run on the commercial banks is underway. In Q2 of 2008 the FDIC reported $4462bn insured domestic deposits out of $7036bn total domestic deposits; thus, only 63% of domestic deposits are insured. Thus $ 2574bn of deposits were not insured. Given the risk that many banks – small, regional and national – may go bust (as even large ones such as WaMu and Wachovia went recently bust) there is now a silent run on parts of the banking system. Deposit insurance formally covers only deposits up to $100000. Thus any individual, small or large business and/or foreign investor or financial institution with more than $100000 in a FDIC insured bank is now legitimately concerned about the safety of its deposits. Even if as likely the deposit insurance limit will be temporarily raised to $250000 by Congress there will still be a whopping $1.9 trillion of uninsured deposits (or 73% of total deposits); thus, a huge mass of uninsured deposits will remain at risk as even small businesses have usually more than $250K of cash while medium sized and large firms as well as any domestic and foreign financial institution or investor with exposure to US banks has average exposure in the millions of dollars. Particularly at risk are the cross border mostly short term interbank lines of US banks with their foreign counterparties that are estimated to be close to $800 billion.

-A run on the short term liabilities of the corporate sector is also underway as the commercial paper market has effectively shut down with little trading and no issuance or rollover of such debt while corporations have no access to long or short term credit markets and they are therefore facing massive rollover problems (over $500 billion of rollover of maturing debts in the next 12 months). Indeed, the market for commercial paper plummeted $94.9 billion to $1.6 trillion for the week ended Oct. 1 (and down over $200 billion in the last three weeks). Especially banks and insurers were unable to find buyers for the short-term debt: financial paper accounted for most of the decline, plunging $64.9 billion, or 8.7 percent in the last week; but now even non-financial corporations are also experiencing a severe roll-off in the CP market. Discount rates for investment-grade non-financial commercial paper spiked to 599bp for 60 day maturities. More companies are borrowing against or tapping their revolving credit lines. This is largely due to the dislocation caused in the money markets by the failure of Lehman and the subsequent withdrawals from money market funds, which are some of the biggest providers of liquidity in the short term funding/commercial paper. Even the largest corporations are at severe stress: ATT last week was forced to rely on overnight funding for its treasury operations, as lenders were unwilling to provide more long term financing due to fears in money market funds over investor redemption. The CEO said “It’s loosened up a bit, but it’s day-to-day right now. I mean literally it’s day-to-day in terms of what our access to the capital markets looks like,’’ Things are much worse for non-investment grade corporations and for small and medium sized businesses. As reported today by Bloomberg: Almost 100 U.S. corporate treasurers gathered for an emergency conference call yesterday to warn each other that banks are using any excuse to charge
more to renew lines of credit.

-The money markets and interbank markets have shut down as – despite the Senate passing the bail-out bill - yesterday USD Overnight Libor was still at 268bp after reaching an all-time high of 6.88%; the USD 3m Libor-OIS spread widened to record 270 basis points; EUR 3m LIBOR-OIS spread is at record 130bp; the TED spread is at record 360bps (TED was 11bps one month ago); Money and credit markets are dysfunctional also in emerging markets ; and agency bond spreads are also at highs again.

So we are now facing:

- a silent run on the huge mass of uninsured deposits of the banking system and even a run on some insured deposits are small depositors are scared;

- a run on most of the shadow banking system: over 300 non bank mortgage lenders are now bust; the SIVs and conduits are now all bust; the five major brokers dealers are now bust (Bear and Lehman) or still under severe stress even after they have been converted into banks (Merrill, Morgan, Goldman); a run on money market funds restrained only by a blanket government guarantee; a serious run on hedge funds; a looming refinancing crisis for private equity firms and LBOs);

- a run on the short term liabilities of the corporate sector as the commercial paper market has totally frozen (and experiencing a roll-off) while access to medium terms and long term financings for
corporations is frozen at a time when hundreds of billions of dollars of maturing debts need to be rolled over;

- a total seizure of the interbank and money markets.

This is indeed a cardiac arrest for the shadow and non-shadow banking system and for the system of financing of the corporate sector. The shutdown of financing for the corporate system is particularly
scary: solvent but illiquid corporations that cannot roll over their maturing debt may now face massive defaults due to this illiquidity. And if the financing of the corporate sectors shuts down and remains
shut down the risk of an economic collapse similar to the Great Depression becomes highly likely.

So what needs to be done?
Even several hundreds of billion dollars in emergency liquidity support to the financial system by the Fed and other central banks in the last week alone have not been enough to stop the seizure of liquidity in interbank markets and the shut down of financing for the corporate sector as counter-party risk is now extreme (no one trusts any more in this crisis of confidence even the most reputable and trustworthy financial and corporate counter-parties).

Thus, emergency times where we are at risk of a systemic meltdown require emergency measures. These include the following six ideas, which are also the key points to be listening for as potential catalysts for sudden market surges to the upside:

-A temporary six-month blanket guarantee on all US deposits (not just those below $250k) combined with a rapid triage between insolvent banks that should be quickly closed and distressed but solvent – conditional on liquidity and capital injections – banks that should be rescued. To stop the silent run on the banking system you do need now such blanket guarantee on all (insured and uninsured) deposit regardless of their size. To minimize lender moral hazard from such action the blanket guarantee needs to be followed by a very rapid triage and shut-down of insolvent institutions to prevent such institutions from gambling for redemption, i.e. acquiring more deposits and making even more risky loans. To limit such moral hazard distortions one can also limit the extended guarantee only to current deposits: i.e. any new deposit above a $100k limit will not be insured.

- Extension of the emergency liquidity support of the Fed (both TSLF and PDCF) to a broader range of institutions in the shadow banking system, especially those directly providing credit to the corporate sector. The TSLF and PDCF are already available to some non banks (the broker dealers that are primary dealers of the Fed). But two of such broker dealers are gone (Bear and Lehman) and the other three are under stress. Goldman Sachs, Morgan Stanley, the other primary dealers and the banks that have access to the TSLF and PDCF (and discount window) have massively used these facilities in the last few weeks; but they are hoarding such liquidity and not re-lending it to other banks, to the thousands of the other members of the shadow banking system and to the corporate sector as they need such liquidity and don’t trust any counter-party. Thus the transmission mechanism of credit policy (the non-traditional Fed liquidity lines) is completely shut down now.

- Some members of the shadow banking system will not receive such liquidity support of the Fed (hedge funds and private equity funds) as – fairly or unfairly – there is no political sympathy for such institutions. This means that the demise of hundreds – and possibly thousands – of hedge funds will occur as redemptions and roll off of overnight repo financing for leveraged investments will cause a massive liquidity – and thus solvency – crisis for such institutions. If hundreds of smaller hedge funds collapse the systemic consequences would be limited (even if in the aggregate hedge funds provide significant financing to the corporate sector). If larger and systemically important hedge funds were at risk of failing the Fed will have to engineer a massive private sector bail-in of such hedge funds (a larger scale rescue a la LTCM) where the prime brokers of such funds are forced to maintain repo exposure to such funds rather than be allowed to shut off such exposure. This is a radical suggestion but the alternative of a Fed liquidity bailout of systemically important hedge fund is not politically feasible given the little sympathy that such funds enjoy in Congress. The refinancing crisis of private equity firms and their LBOs is a longer fuse run as covenant-lite clause and PIK toggles will postpone such financing crisis but make the harder the fall as zombie corporations that postpone restructuring will have a bigger collapse once the financing crisis eventually occurs. But since many of these LBOs should have never occurred in the first place any financing crisis for such buy-outs should be dealt with in bankruptcy court; no public funds should be used to rescue such LBOs and the reckless private equity firms that designed such schemes.

- Direct lending to the business sector from the Fed via extension of the PDCF and TSLF to the non financial corporate sector. This could include Fed purchases of commercial paper from corporations and other forms of financing of the short term liabilities of the Administration to small businesses secured in appropriate ways. Given the collapse of the corporate CP market and the banking system reluctance to provide loans to the corporate sector (credits lines are being shut down) the only alternative to the Fed becoming directly the biggest emergency bank for the corporate sector would be to force the banking system to maintain its exposure to the corporate sector, possibly in exchange for further Fed provision of liquidity to the banking system. The former option may be better than the latter to deal with the looming illiquidity of the corporate sector.

- Have a coordinated 100bps reduction in policy rates by all major advanced economies central bank and, possibly, even some emerging market economies central banks. While this policy rates may not directly resolve the insolvency issues in financial markets and in the corporate sector it may ease liquidity pressures and it would signal that global policy makers are serious about addressing together this most extreme liquidity and financial crisis. Also, some of the radical policy actions that have been suggested here for the US will most likely need to be undertaken also by European policy makers as the liquidity and credit crisis is now becoming global.
- Radically redesign the Treasury TARP rescue plan – possibly after its necessary approval today – to make it effective, efficient and fair. This implies that in addition to a more limited government purchase of toxic assets, you need: a) an emergency triage between insolvent and illiquid and under-capitalized but solvent banks should be made; b) a sharp reduction of the mortgage debt burden of the insolvent household sector; c) and a recapitalization of solvent banks to be done via public injection of preferred shares and matching contributions by current shareholders of the banks. Financial markets have already voted no to this plan (that is flawed in its current form) yesterday when after its passage in the Senate US and global equity markets plunged another 4% while money markets and credit markets seized up even further.

Bottom Line Conclusion:
This credit crisis is both a crisis of confidence and illiquidity and a crisis of credit and solvency. But while the insolvent institutions should go bust we have now reached a point where many financial institutions and now non financial firms may become insolvent because of pure illiquidity; and this would lead to an extremely severe economic contraction similar to an economic depression rather than a mild recession. At this point the US, the advanced economies (and now likely even some emerging market economies) will experience an ugly recession and an ugly financial and banking crisis regardless of what we do from now on. What radical policy action can only do is preventing what will now be an ugly and nasty two-year recession and financial crisis from turning into a systemic meltdown and a decade long economic depression.

That big huge cavernous looking gap underneath GOOG is going to keep a lot of weak players out of the stock until she’s run another 100 points at least (where they’ll jump in and you should be selling to them, like all good traders ashould).

Remember, there is an enormous short position that is now very trapped (sorry for sic.) for lack of a better word.

Being that it’s Monday, we probably saw a net inflow of retail money into mutual funds, now that tax season is over and the markets been grabbing headlines.

I can see an early pullback across the board as sellers will be defensive, meaning there are going to be a lot of “sell strength” bears out in the first half of the day and maybe even the algos’ net effect will be bearish and strength is tested here.

The market will try to test the depth of bids. If there’s a lot of natural size on the bid (not just short covering), and the pullback is shallow, it will cause the “buy to cover” positions to probably switch from limit to market.

This order flow will compete with the natural bids, causing most predatory algorithms to take notice and snuff out any efficiencies. This proprietary flow will become liquidity that crosses the firms books and becomes natural size in the broker controlled dark pools.

And the best part is this will all happen pretty fast. Short term traders can really focus right now and do extremely well. Pick a couple dozen stocks, fine tune your parameters, become a technician temporarily and exploit this “noise”.

Ivanho Energy picked up 20% in the past couple weeks since it popped up on Investment Capitalist.