Volume Vs. Liquidity

Between the 3 major exchanges, there is approximately 12 Billion shares changing hands everyday. The uninformed say that's relatively healthy volume. Again...the uninformed.

There is a big difference between volume and liquidity. Guess what?t The volume is not bad, but the liquidity of the market is horrible because many of the people were blown out late last year and early this year, and they are not coming back ever.

The volume you are seeing is fictitious, its not real volume. Some 60 to 70% of the 12 billion that is traded every day comes in the form of whats called "High Frequency Trading" or HFT, trading that is done by machines(Program Trading). The biggest/fastest machine wins the game. What happens all day long with these HFT is that they trade huge blocks of (Buy/Sell)stocks(Baskets) in micro millisecond's, capturing tiny spreads if they can while receiving liquidity rebates from the exchanges. The exchanges remember are in partnerships with these companies that execute the HFT. These trades are done for no apparent fundamental reason other then to accumulate these rebates. The NYSE started the "Supplemental Liquidity Providers" (SLP) program back in November 2008, and it started the program with the 4th branch of Government-GOLDMAN SACHS. Guess who has the biggest/fastest HFT operation on Wall Street? Goldman dominates Program Trading on the NYSE, bottom line. Again, these trades are put in for no apparent fundamental reason other then to gain liquidity rebates from the exchange. The biggest trades are done in the following:

1- SPY S&P 500 INDEX ETF or SPYDRS
2- QQQQ NASDAQ 100 ETF or CUBES
3- IWM High Beta RUSSELL 2000 ETF
4- DIA Dow Jones ETF or Diamonds.

At the moment, before today there has been a bullish tape, so these trades follow the tape. That is why the market has been so strong. These trades are market agnostic. All it is NOISE. The market is made up of buyers and sellers, but principle program trading, the type of trading that is done at Goldman, CSFB, Morgan Stanley, and JP is a way to make the market go in your direction. Let me explain, the entire system is electronically linked, so everyone is playing with generally the same mouse trap set up the algorithms to chase these type of HFT, which officially inflates equity prices. So the rally we are seeing is not real, it only allows equity prices to rise artificially so that stock options get back in the black, so that bonuses can be paid, etc. But it cuts both ways again...the tape before today had been bullish, if the tape becomes bearish all of a sudden,these HFT/Program Trading/Algorithm trades will just follow the trend and leave for the trap door. These machines that are doing the trading don't care about prices, they only care about direction.

So the Goldman's/MS/JP's of the world are not adding liquidity to the market, they are just adding noise in the form of volume while pocketing rebates.

Most people painfully are not aware of whats going on. They only know the following:

Whats moving the markets the last few months

Positive spin from Government/Politicians/CEO-Executives.
Bogus Analyst Upgrades
Bank Secondary Offerings to Pay back TARP
Global Crude Oil Trade
TECH

What is going to happen is this: We are all going to come to work (If We Have a Job) one day. The markets door is going to close, everyone is running for the exits, there is going to be a major move in equity prices downward, there is no liquidity, the machines are going to sell, because they are programmed that way, and all of the quant/algorithm trading programs are going to piggy back the big boys. Then what? Everyone is going to look at each other and say "what just happened". You read it here first.