The stock market’s big short-term moves aren’t unpredictable … you can trade them for huge profits
If you’re like me and more than 99% of your fellow investors, buying and selling stocks is easy.
That’s because the amounts we deal in are tiny relative to the number of shares outstanding, and relative to the market values that public companies have.
For example, Home Depot is a $246 billion company and its stock has more than $1 billion in daily dollar trading volume.
Most people don’t buy anywhere near $100,000 worth of shares of a stock, but even if they did, that large figure is a drop in the ocean that is Home Depot’s daily dollar trading volume.
A $100,000 buy-order won’t have any effect on the Home Depot’s stock price. You can execute the transaction in a second with no hassle and at almost no cost.
But what if you wanted to buy not $100,000 … but $100 MILLION dollars’ worth?
Typically, buying $100 million worth of stock is very difficult. It is a problem that some of the smartest people in the world work on every day, using powerful computers.
It turns out that this problem can make you a lot of money. It has created one of the most profitable “anomalies” in the world.
In today’s Digest, I’m excited to tell you more about this anomaly. That’s because I’d say not one in 1,000 investors knows about it — and not one in 10,000 are able to benefit from it.
We’re going to make you that “one.” Let’s jump in.
***This profitable anomaly exists because buying $100 million worth of stock is a problem that large institutional investors encounter all the time
Institutional investors are the elephants of the financial markets. They are the real movers of financial asset prices.
These are the people that manage mutual funds, pension funds, large hedge funds, and insurance funds. This group also includes sovereign wealth funds, which manage the savings of entire countries.
A single large institutional investor can manage over $20 billion in assets. So, even a wealthy individual with $2 million in assets is a mouse compared to this elephant (in this case, the elephant is 10,000 times larger).
Some institutional investors manage much more than $10 billion.
The sovereign wealth fund of Norway — which has been fattened by oil revenue for years — climbed over $1 trillion in 2017.
This is 100 times bigger than a big institution with $10 billion to invest.
In other words, the large institutional investors of the world have a ridiculously large amount of money to invest in stocks and bonds and other assets.
Ever want to know who really runs the world?
It’s these people and their clients.
Large institutional investors put their pants on one leg at a time. They eat breakfast, take the kids to school, pay their mortgages, and gripe about their in-laws just other people do.
But that’s where the similarities large money managers have with individual investors end.
That’s because $10 billion is a hell of a lot of money.
Moving $10 billion into this and that investment versus moving $100,000 into investments is like trying to move 50,000 gallons of water around instead of moving a glass of water.
It’s like shuffling 1,000 kids around a museum instead of two kids.
It’s like managing the construction of a 100-story skyscraper instead of a driving in a nail in the wall to hang a painting.
Get the idea?
Moving $10 billion into high quality investments at good prices is a logistical nightmare.
And this brings us to a huge money-making opportunity.
***If you’re a fund manager with $10 billion to invest, a $100 million position represents 1% of your capital
Since many fund managers like to put 4%, 5%, even 8% of their capital into their best ideas, fund managers often buy $400 million, $500 million, and $800 million worth of an individual company’s stock.
The big hedge fund Tiger Global has some stock positions of more than $1 billion in value. Warren Buffett’s Berkshire Hathaway has some stock positions of more than $10 billion in value.
Giant fund managers can’t place orders to buy or sell their entire positions at once. Their orders would overwhelm the amount of interest from the other side of the market … which would cause massive share price swings up and down. This would make it impossible for the big manager to get a good price on his position. It would also draw the ire of government regulators
Instead of placing single massive orders, large money managers buy and sell huge positions in pieces. Accumulating or eliminating a $1 billion position can take more than a month of buying or selling “in pieces.”
When you buy $40 million here and $40 million there for a month, pretty soon you’re talking about real money.
***Despite the best efforts of giant fund managers, their buying and selling operations often move the markets
Have you ever bought a stock … only to see it mysteriously drop 5% or 10% over the next few days?
You know the feeling. Seeing the loss in your account … knowing you worked hard for that money … but unable to find a shred of news that explains why the stock dropped.
Financial advisors tell you to chalk up these moves to “volatility” … or to the market being random and full of unexplainable gyrations.
While plenty of stock market moves can be chalked up to randomness, a huge amount cannot.
They are the product of giant investors buying and selling giant blocks of stock
.
A giant investor’s “small pieces” are often still huge relative to a company’s size and trading volume.
Realize that many public companies are less than $5 billion in size. A “modest” position size for a large fund represents more than 20% of a $5 billion company’s value.
Given the trillions of dollars out there looking for a home … and given all the relatively small stocks and ETFs on the market, large investors frequently push the prices of securities around by 5% – 10% in the span of a week. Despite a large money manager’s best effort, her buying and selling activity is often like a 300-pound man cannonballing into a swimming pool. There’s a splash, plus major financial ripple effects.
***Wouldn’t it be great if you could monitor the buying and selling activity of giant institutions and anticipate what stocks and ETFs are poised to move 5% – 10% in the span of a week?
That would be like being able to see your opponent’s cards in a poker game … or having your opponent’s playbook in a football game.
The good news is, you can monitor the buying and selling activity of giant institutions and anticipate big moves in the stock market …
… through the trading activity in a shadowy, secretive corner of the market called “dark pools.”
***Dark Pools 101 — an introduction to the stealth stock exchange
Dark Pools are private stock exchanges where the “big boys” on Wall Street place their trades. They’ve existed for decades on Wall Street.
Regular investors buy stocks on public exchanges like the NASDAQ, AMEX, and the NYSE. But big Wall Street institutions like Goldman Sachs and JP Morgan don’t. They trade on private exchanges — that regular investors don’t have access to — known as the Dark Pools.
In today’s market, the Dark Pool is a series of networks that allow traders to buy and sell large blocks of shares without running the risk that other traders will see their hand.
How does Goldman Sachs sell 20 million shares without moving the market down? They don’t have to report one single share being sold until their entire order of 20 million shares is filled.
It’s not enough that these large traders are given an edge not afforded to retail traders, but they are also given up to three hours to report their trade to the trade reporting facility (TRF) that trickles down to the consolidated tape.
These trades aren’t being executed on the NYSE or the Nasdaq exchanges. They’re being executed on alternative trading systems (ATS).
And don’t think this is a tiny obscure area of the market. More than 40% of the total volume traded in the stock market is being executed in dark pools. This is a huge financial network that anyone with a serious interest in the stock market should know about.
***Over the past year, we’ve learned a great deal about Dark Pools and the financial anomalies they create through a legendary market analyst named Stefanie Kammerman
Stefanie is a trader who cut her teeth trading for Shonfeld Securities, one of the world’s largest and most prestigious proprietary trading firms. The firm staked traders with capital, supplied them with cutting edge technology and information, and shared trading profits with them.
In her first year, Stefanie was named “Rookie of the Year” and eventually acquired the nickname “Trading Goddess.” After leaving full time trading to start a family, Stefanie traded part time while being a full-time mom. Now that her kids are “out of the house,” she trades full time and publishes her analysis of dark pools and the short-term trading opportunities they create.
While at Shonfeld, Stefanie learned a critical secret for making short-term profits in the stock market: “Follow the money.”
While traders at Shonfeld paid attention to fundamental information like earnings, and technical analysis information like price trends, the overriding strategy and mantra of the traders was “follow the money.”
Thanks to dark pool analysis, traders had insight into what large trades were poised to enter the market and influence prices.
Fundamentals matter over the long-term. But when it comes to trading short-term moves, top traders would much rather know what giant buyers and sellers are doing than they would know a company’s P/E ratio. After all, a low P/E ratio and good fundamentals doesn’t count for squat when someone is unloading $200 million worth of stock.
If you want to make money trading short-term moves … if you want to profit from those big unexplained stock moves we all see so often, don’t follow the fundamentals. Follow the money … the dark pool money.
These days, Stefanie trades her own account and publishes her commentary from a beautiful condo off the Las Vegas strip. Over the coming months, we’re going to be sharing some of Stefanie’s trading ideas with you, then tracking the outcomes.
Think of it as dark pool training course, done in real-time, with real trades. We get to peek over Stefanie’s shoulder to see how a professional trader uses the dark pool to make big money.
Best of all, it begins today.
***Big money is flowing in Schlumberger
Before we go any further, let’s make clear that we are not recommending you place this trade in your own account. What we are presenting right now is an introduction to how trading in the Dark Pool works.
Yesterday, we received this notice from Stefanie:
My analysis of dark pool trading in Schlumberger, symbol “SLB,” indicates the stock is poised for a short-term large move. Massive unusual Dark Pool prints are coming in over the past few days.
When massive prints come out, we are not always sure of direction, so instead of waiting, I prefer to put on a strangle.
Stefanie then provided the specifics of her recommended strangle.
To make sure we’re all on the same page, a “print” is the record of a market transaction, including basic information such as the time, price, and share size. And a “strangle” is a type of trade in which you establish two positions at once — one bullish, one bearish. Once the direction of the move is confirmed, you sell the opposite side of the trade, let your winning side run, then net the difference.
Sometimes, Stefanie recommends a single-direction trade, but in this case, she deemed the strangle to be the best call.
Now, what’s interesting is that only a few hours after Stefanie’s trade dark pool alert hit my in-box, I saw this headline …
So, all eyes on Schlumberger. We’ll see how much the stock moves in coming days.
Remember, we’re not actively recommending you place this trade in your own account. Rather, we’re highlighting it as more of a watch-and-learn tutorial.
We’ll monitor the trade and report back over the coming days/weeks. Plus, we’ll continue to bring you new dark pool trades from Stefanie as they occur. We’ll notify you if/when we decide to officially recommend a specific trade.
Bottom line, this is how a small group of professional traders make millions of dollars every year. We know of no other financial newsletter offering this information, so we’re thrilled to be able to share it with you going forward.
Have a good evening,
Jeff Remsburg
