Goldman And JPMorgan SPY Holdings Double Over Prior Quarter

[Joanne98]

Over the past 6 months, much attention has been focused on broker/dealer trading in ETFs, and more specifically, on the SPDR S&P 500 ETF, better known as SPY, which in the absence of material cash volume in intrinsic names, has become the de facto primary way to express a bullish and, to a much smaller degree, bearish bias on stocks. Previous observations by Zero Hedge and elsewhere have demonstrated odd accumulation behavior by major broker-dealers which have been speculated to use precisely this ETF, in order to "push" the market in one direction or another. Having done some micro-level research previously, we decided to analyse SPY patterns from a macro stand point. After compiling SPY holder data for the just completed Q4 2009 quarter, we have observed some very curious trends in SPY accumulation. To wit: in Q4, the 5 major market players saw a dramatic increase in their SPY $ notional holdings: specifically JP Morgan (combining both Asset Management and Private Wealth) jumped by 222%, Goldman Sachs saw a 45% increase, Merrill Lynch SPY holdings increased by 207%, and those of Deutsche Bank: by 256%. During this time Morgan Stanley was relatively flat, while probably the biggest surprise was Credit Suisse, whose holdings dropped by 48%, or nearly 24 million SPY shares, to 26 million in Q4. Keep in mind Credit Suisse had a record 2009 holding of 109 million SPY shares on June 30, 2009: it appears Credit Suisse ETF desk has decided to aggressively offload as many SPY shares as it possible can beginning in Q3, 2009. Altogether, we observe a decidedly positive correlation between B/D SPY holdings and the performance of the broader market.

Taking into account these moves, the top holders of SPY are now as follows:

http://www.zerohedge.com/article/goldman-and-jpmorgan-spy-holdings-double-over-prior-quarter-and-other-spdr-observations

Guest Post: Is The SPY Getting A "Jump" At Key Levels From A Quant Algo?

Now for the juicy stuff...For months now i have been watching a specific algorithm push our markets around with great ease. It looks like this algo is giving the SPY a little push through support and resistance levels with massive size executed in seconds. Sometimes the push is tens of thousands of shares, the size all depends on the natural volume around the level which the SPY is trading at the time it may need a "Jump". For instance if the market is oversold on a 1 min time frame and is trying to break higher off lows but just cant get the party going on its own, the algo will come in and take offers until day traders, scalpers, swing traders jump in and chase the market higher. Once the price gets "jumped" the algo just sits and waits till natural buyers and sellers are few and far between and it either dumps or takes in more. Usually the program will reset itself after a trade, then will wait till it senses low volume once again.

For some concrete evidence of this action i have done a quick illustration, which includes Time & Sales which only display prints on the exchange the algorithm does business on. This exchange is used because of its very nice rebate structure, and it allows the algo to exploit the SOES, meaning it cannot trade in blocks larger than 10000 shares per order. So what does it do, it takes blocks almost 10,000 shares multiple times a second, this price action causes the market to lift violently. This is not small money, remember small money follows big money.

The algo in question starts buying at 110.04 with one block of 9999 shares, followed by 60k more shares all bought in under two minutes. You can see from the chart how the SPY reacted, it violently moved higher all the way up to 110.55, where the algo dumped just about all of the shares, you can see the prints in the "dump" prints window, again only showing the print from the exchange the algo does business on. The algo did its job, the cash market snapped back, the components again caught a bid and moved higher through resistance. I.E. they look alive and well... Natural buyers came in above the 110.55 level chasing the market up another 50 cents or so before they left and the SPY fell again because the volume was not there to support the massive run up which took place over 15 minutes. As you can see the algo works in two capacities, it manipulates the market to the upside along with keeping S&P500 components trading in a liquid orderly "non flat" fashion.

http://www.zerohedge.com/article/guest-post-spy-getting-jump-key-levels-quant-algo

[On the Road]

1. That Second Article is Fascinating

A lot of the traders at Clearstation.com post about market manipulation. I always figure it's because they misread the tehcnicals like all of us do, or that there is information that hasn't been made public yet. After all, the amounts of money needed to move an entire exchange are vast, even for major financial companies.

Now "Tyler Durden" is showing how it might be done -- at very specifics resistance points using broad ETFs.

An enormous proportion of trading nowdays is short-term and based on technicals. Technical traders are very likely to sell at resistance levels, leaving it to longer-term buyers to move past that point. So, what the author appears to be claiming is that when the stock gets very close to resistance, he is seeing purchases in huge blocks that send it over. It would take advantage of the fact that stocks driven by technicals are unstable -- momentum in either direction tends to be amplified by momentum traders piling on. So a $.10 move through resistance can turn in to a $10.00 rally.

The only problem I have with this scenario is that it doesn't seem to be supported by the chart:


(Larger version linked at article: http://www.zerohedge.com/article/guest-post-spy-getting-jump-key-levels-quant-algo)

The intervention the author is writing about takes place at 109.92, when the stock is falling -- they might have been buying at a support level or practicing a microscopic form of plunge protection. Due to the few large trades, the price jumps, stalls at about 110.57, and then continues upwards. The stall happened when the large buyer unloaded shares which were bought by daytraders chasing the trend. What that resembles is a normal daytrade, or more cynically a day-trading version of pump and dump. As far as I can see, it does not show an algorithm that is causing breakthrough of resistance.