Markets: a killer on the road, actually two

Posted: February 9, 2018 in Uncategorized

Another day, another kill day for the market.

Did you notice that the kill zone is always 30 mins before the close.

Two motivations and the same culprit

  1.  To make money a lot of mega funds (US 401k, Industry funds, Sovereign funds) found a new way to make money. As lat year the volatility was not existent they started volatility trade. Sell volatility say at 8 and get extra income without doing anything. The issue is that as soon the volatility rise the program (the are all computer driven programs) have to sell  indiscriminately to unwind the trades.So practically when the volatility is high they buy (like in the two days of calm) and then they sell adding. Like today, looking at the VIX, as soon as the VIX passed the 200 days average everything went pear-shaped. All automated.
  2. Robo advice – especially in the US the large majority of retail clients are now using Exchange Traded Funds and Robo – Advice. Again as the volatiity spikes the risk does not match and they start selling (again at the end of the day) indiscriminately.

What a human can do?

The human can discern when there is good value or not (actually in the sell off good company have been sold off more as they can withstand the volume or money) – wait the storm to pass and buy again.

What the Regulator should do?

They are the one that should have imposed rules on the algorithmic trading machines. Probably they will do it. Late as usual


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