Friday, April 17, 2009

Suiciding The Market

Zero Hedge presented some perspectives on how broken the market is yesterday. The trend continues as today's quant deleveraging trade already finished (market neutral quants down 17% in March, April likely much worse). Currently momo quants and marginal institutions and retail are buying, driving on fumes, and about to suicide the market (there is a reason Zero Hedge used an ecosystem analogy previousy: currently there is utter disequilibrium in the market and it is getting worse with every uptick). The bagholders are already in place (nobody ever learns from prior mistakes). Marginal L/S quants are forcing the "rubber band" to snap, to use the words of Matt Rothman, hitting reversion programs intraday (as readers point out, "if it works, why go against it"), and selling negative ETF violently while buying the worst stocks, trying to force the biggest market squeeze in recent history. In the meantime the feedback loop between a technically driven rally and consumer confidence continues: market up, confidence up. Of course, that fact is too obvious to even need pointing out.

Case in point: SRS VWAP since March 6 is at $52.02 after 35.45 billion shares traded (average price is $55.62), compared to its current price at 50% lower on micro volume push downs from marginal and gap selling. No trade recommendation here, just presenting the facts.

The regulatory response from an impending quant collapse will be hilarious, as the administrations' and the regulators' very own recent misguided policies will be undoubtedly blamed for the next major leg down. Sphere: Related Content
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