Are stocks artificially being sustained by market makers, hedge funds, etc. who are looking to unload their stuff at high prices? Or do current prices properly reflect the level of severity of the situation in America?
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Why stocks are not much lower given the problems.
- Thread starter Option Trader
- Start date
Not true. They are being held up by the inflation the Fed has created. Massive amounts of liquidity has been pumped into the market and it's working. The question is....how long will it work for given the severity of the situation? Dunno.
Examine your premise.
Price is the ultimate arbiter.
Price is the ultimate arbiter.
Quote from Option Trader:
Are stocks artificially being sustained by market makers, hedge funds, etc. who are looking to unload their stuff at high prices? Or do current prices properly reflect the level of severity of the situation in America?
I am interested to hear your theory on how a market maker could hold up the prices of the broader market. If I took something like MSFT for example, which is a highly weighted component of the biggest indexes there are between 100 and 200 firms which make markets in MSFT common stock. They are all in different places and they all make money off the order flow they receive from the various sources. How would they all act in concert simultaneously to hold up the price, given they make their money on volume and order flow not being long the stock?
I have similar questions about hedge funds? There are litterly thousands of them out there all with their own strategies and agendas. How would they all act in concert at the exact same time period to hold up the huge broad market?
I believe its more a case of the FED putting their finger in the dyke for the time being and hoping they can hold up the markets while this credit crunch and crappy economy works its way through
I have similar questions about hedge funds? There are litterly thousands of them out there all with their own strategies and agendas. How would they all act in concert at the exact same time period to hold up the huge broad market?
I believe its more a case of the FED putting their finger in the dyke for the time being and hoping they can hold up the markets while this credit crunch and crappy economy works its way through
USD (index) has lost 10% of its value since the Dec high, couple that with the decline in equities and priced in foreign currency the US equity markets are relative bargains. That has to be putting some kind of floor in the market, that and the low yield on treasuries. One other factor maybe the liquidity of equities given the liquidity problems in munis etc. Too many short or longs hedged to go down much more at the moment. Just possibilities, I don't know what the real reasons are but I do know that when the markets don't sell off on what is essentially terrifying news in the financials and an poor earnings outlook it is time to look at the long side. Could be that everyone is waiting for the stimulus checks to get sent out and kick in, that and all the money the Fed has pumped and the additional leverage that has been created by accounting rule changes and Fed lending changes. Either we go down hard if people lose confidence (very unlikely as too many have a vested interest in the system surviving) or we rally, at least for a while, or maybe we just tread water for a time. Put credit spreads are what look good to me, as always hedged.
Look to future earnings.
If you can accurately and consistently forecast those (and let me know if you can), congratulations, you're a master trader and/or investor.
If you can't, any opinion you may hold about the 'value' of currently priced equities may not be too valuable in the endeavor to build wealth.
If you can accurately and consistently forecast those (and let me know if you can), congratulations, you're a master trader and/or investor.
If you can't, any opinion you may hold about the 'value' of currently priced equities may not be too valuable in the endeavor to build wealth.
Quote from dipper17:
I am interested to hear your theory on how a market maker could hold up the prices of the broader market. If I took something like MSFT for example, which is a highly weighted component of the biggest indexes there are between 100 and 200 firms which make markets in MSFT common stock. They are all in different places and they all make money off the order flow they receive from the various sources. How would they all act in concert simultaneously to hold up the price, given they make their money on volume and order flow not being long the stock?
I have similar questions about hedge funds? There are litterly thousands of them out there all with their own strategies and agendas. How would they all act in concert at the exact same time period to hold up the huge broad market?
I'd like to know that, too. My theory is that even a single large player can move the markets over short periods of time, so no conspiracy between 200 firms is required. For example, take the monster market such as ES. One would think that it can't be pushed by anyone because it's so huge. But consider this. Suppose that on any given day the balance between buyers and sellers is even, and 1 million contracts were traded. Now a big guy steps in with the sell order of 10,000 contracts. This is significant size, but not outrageus by any means. It would require somewhere between 20 to 50 million dollar margin, and there are enough single players and institutions out there to place these bets. Everything else being equal, this would move the ES down by about 5 to 10 points, and it would set off some stop sell orders, too. And if the demand/supply didn't change, the market will probably stay at that level. So we have it: a single player moved the largest US market by half percent, with an order which is just 1% of the total volume traded on that day. And if you add on all the program selling of all the S&P 500 stocks to arbitrage against this drop in ES, the effect would be even more dramatic. It probably doesn't work exactly this way, but something along these lines. Although there are millions of participans in the ES market every day, the distribution of order sizes between them is highly skewed. Just from the top of my head, I would venture a guess that 1% of all the players are responsible for 99% of all the size traded. And if you accept it, it follows that 99% of all the daily price variance is attributed to 1% of the traders.
What you say is along the lines of my own thinking. Similarly, when on the Yahoo message board everyone was prophesizing that HRB would certainly tank, for being one of the only financials with subprime exposure that hadn't yet tanked--in spite of their tremendous exposure--and they were buying puts & shorting the stock, even though it had occassional dips it was 100% clear that stock was being "supported" by one or more of the many institutional holders.Quote from nonlinear5:
I'd like to know that, too. My theory is that even a single large player can move the markets over short periods of time, so no conspiracy between 200 firms is required. For example, take the monster market such as ES. One would think that it can't be pushed by anyone because it's so huge. But consider this. Suppose that on any given day the balance between buyers and sellers is even, and 1 million contracts were traded. Now a big guy steps in with the sell order of 10,000 contracts. This is significant size, but not outrageus by any means. It would require somewhere between 20 to 50 million dollar margin, and there are enough single players and institutions out there to place these bets. Everything else being equal, this would move the ES down by about 5 to 10 points, and it would set off some stop sell orders, too. And if the demand/supply didn't change, the market will probably stay at that level. So we have it: a single player moved the largest US market by half percent, with an order which is just 1% of the total volume traded on that day. And if you add on all the program selling of all the S&P 500 stocks to arbitrage against this drop in ES, the effect would be even more dramatic. It probably doesn't work exactly this way, but something along these lines. Although there are millions of participans in the ES market every day, the distribution of order sizes between them is highly skewed. Just from the top of my head, I would venture a guess that 1% of all the players are responsible for 99% of all the size traded. And if you accept it, it follows that 99% of all the daily price variance is attributed to 1% of the traders.
In short, when it's to the advantage of the big players, the stocks stay up/go up, till the retail folks go into euphoria, then it's dumped on them. The same on the downside.
When I began trading based on this premise, I was I saved from numerous mistakes (including on HRB).
Quote from nonlinear5:
I'd like to know that, too. My theory is that even a single large player can move the markets over short periods of time, so no conspiracy between 200 firms is required. For example, take the monster market such as ES. One would think that it can't be pushed by anyone because it's so huge. But consider this. Suppose that on any given day the balance between buyers and sellers is even, and 1 million contracts were traded. Now a big guy steps in with the sell order of 10,000 contracts. This is significant size, but not outrageus by any means. It would require somewhere between 20 to 50 million dollar margin, and there are enough single players and institutions out there to place these bets. Everything else being equal, this would move the ES down by about 5 to 10 points, and it would set off some stop sell orders, too. And if the demand/supply didn't change, the market will probably stay at that level. So we have it: a single player moved the largest US market by half percent, with an order which is just 1% of the total volume traded on that day. And if you add on all the program selling of all the S&P 500 stocks to arbitrage against this drop in ES, the effect would be even more dramatic. It probably doesn't work exactly this way, but something along these lines. Although there are millions of participans in the ES market every day, the distribution of order sizes between them is highly skewed. Just from the top of my head, I would venture a guess that 1% of all the players are responsible for 99% of all the size traded. And if you accept it, it follows that 99% of all the daily price variance is attributed to 1% of the traders.
That might move the market momentarily, but no where near 5 to 10 handles. Donât forget that the ES can be arb'd vs. the big SnP futures contract and vs. the cash itself and as soon as that relationship gets out of line there will be people ( firms ) who step in and drive that back. Think about it 10k vs. 1 million is not much volume either.
Getting back to the original question, moving the market even just a couple of handles does not put a floor in the market and has nothing to do with the MM or hedge fund conspiracy noted earlier?
Will the original poster address those claims?
By the way what would be gained by selling 10k cars at the market?
You are probably right in the current situation, and that is what the others say as well, i.e. the Fed pumping in money.Quote from xflat2186:
That might move the market momentarily, but no where near 5 to 10 handles. Donât forget that the ES can be arb'd vs. the big SnP futures contract and vs. the cash itself and as soon as that relationship gets out of line there will be people ( firms ) who step in and drive that back. Think about it 10k vs. 1 million is not much volume either.
Getting back to the original question, moving the market even just a couple of handles does not put a floor in the market and has nothing to do with the MM or hedge fund conspiracy noted earlier?
Will the original poster address those claims?
By the way what would be gained by selling 10k cars at the market?
Overall, as to whether or not big players can put a floor in the market if they wanted: are you saying your view is they can't even if they wanted to? Or they wouldn't? If the former, I would find it hard to believe that the major banks & brokerage firms don't contact each other & develop strategies together, i.e. specifically the biggest tradest of the underlying they are handling (okay, for granted that this doesn't mean everyone). Also, even if the extent of the so-called conspiracy is to not work against each other & to respect each other's turf.