Algos Saved the Day, but what if Algos Turn Bearish?

Stock market volume is a sadly drooping southward curve, interrupted by spikes. Volumes and turnover rates are now back to levels of the late 1990s. If high-frequency trades and ETF-arbitrage are taken out of the equation, turnover might well be back to where it was in the 1980s. So algorithmic trading – for example, an instant burst of computer-generated buy orders based on a headline that hit a fraction of a millisecond earlier – can have a big impact on the market overall.
Art Cashin, in his ‘Market Commentary’ for UBS on yesterday’s market action – titled, ‘Bulls Turn Tide, Maybe Helped By Artificial Intelligence’ – put his finger on the power of those algo trades.
U. S. stocks followed the lead of European markets and moved lower after a mixed opening. A key negative influence was further weakness in crude, which had Chevron and Exxon subtracting over 20 points from the Dow by mid-morning. Also hurting was a continued ratcheting up of interest rates around the globe.

This post was published at Wolf Street on September 11, 2014.