Why Markets are dangerously volatile.

[gcgang]

https://www.cnbc.com/2018/12/06/mar...-why-these-sudden-moves-are-here-to-stay.html

Article blames machine driven algorithms for volatility, asks why SEC allows. Also blames passive investing for reducing liquidity.

I didn't know they got rid of the Uptick Rule. Bring it back by all means.

 

[bobandsherry]

Machines also monitor news stories for keywords and initiate buy and sells. Put in a company name and word bankruptcy and things go crazy fast. Saw report on CNBC a while ago about this.happening on company stock that had quick sell off until a person stepped. The story wasn't about the company going bankrupt but one of their suppliers.

 

[jazz4cash]

It seems that things like bringing back the uptick rule or tightening margin requirements are too logical for the markets/SEC to enact. The markets make money on volume so anything that slows trading down is not good for them.

Circuit Breakers
The market drops Tuesday and today were only about halfway to achieving a level 1 circuit breaker. I seem to recall this being used once, but I don't think anybody knows if this concept will actually work or it might make things worse.

https://personal.vanguard.com/us/content/Funds/FundsToolsCircuitBreakersJSP.jsp

 

[audreyh1]

It seems that things like bringing back the uptick rule or tightening margin requirements are too logical for the markets/SEC to enact. The markets make money on volume so anything that slows trading down is not good for them.

Circuit Breakers
The market drops Tuesday and today were only about halfway to achieving a level 1 circuit breaker. I seem to recall this being used once, but I don't think anybody knows if this concept will actually work or it might make things worse.

https://personal.vanguard.com/us/content/Funds/FundsToolsCircuitBreakersJSP.jsp

I seem to remember going through a few circuit breakers in the 2000s.

 

[NW-Bound]

Machines also monitor news stories for keywords and initiate buy and sells. Put in a company name and word bankruptcy and things go crazy fast. Saw report on CNBC a while ago about this.happening on company stock that had quick sell off until a person stepped. The story wasn't about the company going bankrupt but one of their suppliers.

Hmmm... Seems to me this would be an easy way for shortsellers to plant a story, then make beaucoup money.

 

[NW-Bound]

Here's an article on Bloomberg on the subject, although it requires a subscription and I can only guess through its title: "Biggest Worry for Traders? They Don't Know Why Stocks Are Moving".

If machines are buying/selling without a sound reason from fundamental economic changes, then I should be able to make money day trading doing the opposite.

After all, the only reason one should be afraid of buying is when the market goes down and stays down for a long time due to economic condition deteriorating. But if a market rout is due to stupid machines racing each other through the exit door, at some point, they will turn around and execute "buy, buy, buy".

Can it be so simple?

 

[aja8888]

Here's an article on Bloomberg on the subject, although it requires a subscription and I can only guess through its title: "Biggest Worry for Traders? They Don't Know Why Stocks Are Moving".

If machines are buying/selling without a sound reason from fundamental economic changes, then I should be able to make money day trading doing the opposite.

After all, the only reason one should be afraid of buying is when the market goes down and stays down for a long time due to economic condition deteriorating. But if a market rout is due to stupid machines racing each other through the exit door, at some point, they will turn around and execute "buy, buy, buy".

Can it be so simple?

The people that own and program the machines are there to make money. And I am sure this is not a one time money grab by them.

 

[NW-Bound]

Yes, they are in it to make money, but if you buy low/sell high, you are making money too. Oui?

 

[targatom2019]

I am a long term investor, I can’t beat computer generated trades or institution traders so just stick with long term goals investing in companies with strong earnings and it's working so far.

 

[aja8888]

Yes, they are in it to make money, but if you buy low/sell high, you are making money too. Oui?

Exactly! Just follow the routine of the machine trades.

 

[jazz4cash]

Hmmm... Seems to me this would be an easy way for shortsellers to plant a story, then make beaucoup money.

I think that one of the main reasons that many are calling for reinstating the uptick rule.

 

[NW-Bound]

Exactly! Just follow the routine of the machine trades.

If most of the trades are being done by machines, then for every program that buys low/sells high, there's one that buys high/sells low.

Which machines do you say should be followed?

PS. Or perhaps the machines are simultaneously buying with one hand and selling with the other. They do this to confuse and scare the heck out of the humans?

 

[redduck]

I seem to remember going through a few circuit breakers in the 2000s.

Wow! Not even circuit breakers can stop you!!!

 

[NW-Bound]

High-voltage DC currents are not easily stopped.

I have linked videos of that, but here they are again. Instead of interrupting the circuit, you may create an arc welder right at the breaking contact point.

 

[redduck]

High-voltage DC currents are not easily stopped.

I have linked videos of that, but here they are again. Instead of interrupting the circuit, you may create an arc welder right at the breaking contact point.

Thanks. I watched both of the above videos. It's probably a prudent idea not to try to duplicate those experiments at home.

 

[sengsational]

If a random delay on trades was implemented, the market would be more fair; some of these algorithms depend on millisecond accuracy and randomizing timing just a little would sideline these techniques that make the market jittery.

 

[gstillson]

That circuit breaker is a good demonstration of V = L dI/dt

If you change a sizable amount of current (I) in a small amount of time (t) the voltage must increase across the wire (with inductance L)

You can get thousands of volts by rapidly interrupting a very large DC current being sustained by a relatively modest voltage source. This in turn ionizes the air across the broken connection and can in some cases re-establish current flow with a nice hot arc.

 

[NW-Bound]

It is more than that. The "V = L dI/dt" applies for interrupting an AC current too, unless you have an electronic switch that can turn off right at a zero crossing.

Yet, if we use the same common wall switch that is in every home to turn off a 120VDC circuit feeding the same incandescent lightbulb, the wall switch will burn up like the circuit breaker in the youtube demo.

What happens is that AC contact breaking creates an arc just like a DC circuit does. However, the arc tends to extinguish itself when the AC current reverses at the zero crossings. A DC arc can keep itself going.

The DC voltage that can sustain an arc depends on the current of the circuit. This is a subject in itself, but I have found that below about 80V the danger is reduced. That's why we do not have problems with car voltages at 12V, although the current through the starter is in the 100A's. Even aircraft voltage of 28VDC is still safe. Higher than that, and if you have an intermittent connection, it will burn a lot more readily than the same poor contact for the usual AC household voltage which is yet a lot higher.

In short, an arc can sustain itself at a much lower voltage and current in a DC circuit than in an AC circuit.

 

[ShokWaveRider]

I think the volatility is caused more by Geopolitical uncertainty rather than rising interest rates, which are not really high by any means. Yes the stock market has been spoilt over the years of next to zero rates, but it really cannot be maintained, and it knows it. It is well known that what the market fears most above all is uncertainty. It will probably be like this for another couple of years until things hopefully settle down. JMHO

 

[gerntz]

When volatile, which times aren't markets dangerous?

 

[OldShooter]

When volatile, which times aren't markets dangerous?

Any time one is a long-term investor. Volatility is not a big risk over the long term.

 

[NYEXPAT]

I am more in the "passive investing camp". Very few of the "wild swings" this year have been accompanied by more than average volumes. Even Friday when the S&P experienced it's "Death Cross" a major event for traders did you see volume spike. The "uptick rule" is not of major consequence as we traders can buy a "leveraged short index ie SDS" to get around this and instantly short the S&P. I have been "impacted" by circuit breakers on several occasions most notably Oct 1987, but believe they have a place. Most people don't know this but on Thurs morning the circuit breakers on the futures market in Chicago were triggered multiple times.

As this forum is mostly a buy and hold mutual fund crowd, I do not understand why it is of any concern. Personally, I prefer to watch a "tick chart" over Netflix and this year has provided me with many opportunities to make money and countless hours of "free" entertainment!