Yeah I know that the individual stock prices collectively drive the ETF share prices, but I was just wondering how much the tail is wagging the dog. Some of those funds have gotten huge, and I found myself thinking about how all that capital must be manipulating the stocks that make up the respective indexes. With all those millions of shares traded, the funds clearly have enough momentum to create their own price action, to a degree. I think, anyway.
How much is the proliferation of Index ETF trading affecting stock prices?
- Thread starter GrowleyMonster
- Start date
They do, to a point.
Soros famously made over a $billion dollars on UK pound short single trade going up against the Bank of England. Everything fell together at that time.
Could he do it every other week. Of course not.
Same with so-called smart money. They can paint the tape. But there is always other smart money looking, watching and if there is anyway they can take advantage of that against a fund they will.
Soros famously made over a $billion dollars on UK pound short single trade going up against the Bank of England. Everything fell together at that time.
Could he do it every other week. Of course not.
Same with so-called smart money. They can paint the tape. But there is always other smart money looking, watching and if there is anyway they can take advantage of that against a fund they will.
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As those who trade ES Futures have commented, ES tends to lead and everything follows.
It doesn't make sense, and at best you can call it a workable theory, but it seems to hold true as 500 companies all moving around should make SPY pretty much a random mess; but it isn't.
Many underestimate and maybe misunderstand how the algo trading by the big boys moves the price action (PA) around. There will always be a divide on those that think the PA is from buying, selling, and market forces, but the more you study the charts it appears not to be the case in the direct movement; just overall trends.
Someone previously linked an old article on 'laddering' which gave the game away that the MM algos both buy and sell to move the PA around. I have invested a lot of time drawing lines on charts and there are targets, pathways and ranges created. It is also interesting when those are abandoned such as when Trump was on Twitter.
I can't quite work out the details of why but the how is a complex web of potential paths. It is then down to news and retail demand pushing those.
I did not say or mean that, if that is your view that is OK.
I think this really affects members in a Sector ETF the most especially during a collapse in prices. I remember in Jan 2016 when the large US banks collapsed due to European exposure, it also took down a lot of Regional Banks but most regionals have no non-US exposure. I assume it is the "shoot first, ask questions later" approach to risk management.
When I first read the original post, I was thinking of regional banks and their ETFs. I own stock in IAT...But I also own two regional banks. I feel in someways they lift each other up. A bad earnings quarter may be softened by the steady holdings of the ETF.
A bad quarter may cause pension funds/mutual funds to bail...The ETF may cause less slippage than otherwise would occur.
Not at all IMV. The ETF managers do not operate with a charter objective to "create alpha"... but rather "reflect their portion of the market".
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ONE + of several reasons SPY is not a mess ;
its a good benchmark, + a most common way to be a market millionaires /is buy every month for 40 years.
TRENDS make plenty of sense, Zman;
countertrends make sense also\ just dont last as long \LOL.
I've never seen any chart i thoughtr was random + have plenty printed.
I did think i saw a random pattern in the produce store/once; but when i studied her moves more \ she simply loved to shop for produce, not random. @ all
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