We have all been affected by the late day massive programs as of late. I have seen several explanations for these but consider none credible. If anyone has any intelligent feedback on the subject I'm sure we'd all much appreciate it.
Here's what we know:
-According to ZeroHedge and other bloggers and stories, quant funds are having their worst year ever (down 20+%). Perhaps we are seeing massive liquidation from some of them, or desperation and overtrading to make up for losses? The best time to sell something is into strength. This is one explanation for the selloffs which seem to start in the financials, but lead to the overall market getting whacked by 10+ S&P handles and 100+ Dow points in a matter of mere minutes.
-They are not just Index Arb programs because they are one-sided. In a program we normally see a selloff of stocks, followed by a purchase of futures afterward. This happens often during the day and is the reason for the whipsaw's we see during the day. This would be a sell program.
-I have gone back for the two massive sell's this week and checked the volume in e-mini's and Spy's alone and it is staggering. Assuming that 2/3 of this volume is piling on and stops, the 1/3 assumption of a 'program' is staggering. I'm talking about $100 Billion liquidation in a matter of 5-10 minutes. Even with terrific leverage which is allowed in Index Arb because it is considered 'riskless', who has this size position on? I worked at one of the largest bulge bracket banks and our Index guys were considered one of the biggest. The biggest their hedged book ever got was $30 Billion, and it was unheard of to liquidate it all at once. I think it's safe to assume these are not coming from Index Arb's.
-The sells seem to come at a specific time, like 3.41pm right after imbalances are announced. They can't be one firm or fund. In this day and age, no one would be stupid enough to coordinate/collude programs at the same time with a competitor or friend, but maybe algorithms are set off coincidentally by the first big one?
-The popularity of ETF's and financial 200-300% Bull/Bear Financial ETF's are an explanation for open and close imbalances from the Custodian/Prime Brokers. This volume has been estimated at only 3-4% of the NYSE volume this week in an article in the WSJ so it cannot be responsible for it.
Here's what we know:
-According to ZeroHedge and other bloggers and stories, quant funds are having their worst year ever (down 20+%). Perhaps we are seeing massive liquidation from some of them, or desperation and overtrading to make up for losses? The best time to sell something is into strength. This is one explanation for the selloffs which seem to start in the financials, but lead to the overall market getting whacked by 10+ S&P handles and 100+ Dow points in a matter of mere minutes.
-They are not just Index Arb programs because they are one-sided. In a program we normally see a selloff of stocks, followed by a purchase of futures afterward. This happens often during the day and is the reason for the whipsaw's we see during the day. This would be a sell program.
-I have gone back for the two massive sell's this week and checked the volume in e-mini's and Spy's alone and it is staggering. Assuming that 2/3 of this volume is piling on and stops, the 1/3 assumption of a 'program' is staggering. I'm talking about $100 Billion liquidation in a matter of 5-10 minutes. Even with terrific leverage which is allowed in Index Arb because it is considered 'riskless', who has this size position on? I worked at one of the largest bulge bracket banks and our Index guys were considered one of the biggest. The biggest their hedged book ever got was $30 Billion, and it was unheard of to liquidate it all at once. I think it's safe to assume these are not coming from Index Arb's.
-The sells seem to come at a specific time, like 3.41pm right after imbalances are announced. They can't be one firm or fund. In this day and age, no one would be stupid enough to coordinate/collude programs at the same time with a competitor or friend, but maybe algorithms are set off coincidentally by the first big one?
-The popularity of ETF's and financial 200-300% Bull/Bear Financial ETF's are an explanation for open and close imbalances from the Custodian/Prime Brokers. This volume has been estimated at only 3-4% of the NYSE volume this week in an article in the WSJ so it cannot be responsible for it.