For the last few months of summer, amid dwindling volumes and the deafening roar of event risks around the world, US equity markets have meandered higher on a bed of ever-decreasing volatility as machines (and corporate share-buy-backers) bought every headline dip, sold every vol rip, and generally confirmed Trump’s narrative that everything is awesome.
Even as the economic data is dismal…
But as former fund manager and FX trader Richard Breslow warns, algorithms aren’t investors. They are very aggressive day traders. Nothing more than that.
They key off of market depth, flows and momentum. They interpret the world strictly in the moment. Humans shouldn’t try to emulate that behavior. It doesn’t pay off over any meaningful time period. You may be able to get away with it for a day or two.
Via Bloomberg,
The calendar is conspiring to make this a day where in Europe and North America, participation is going to be light and interest in events even less so.
It’s quiet.
That doesn’t mean all the pressures that have been roiling markets are suddenly spent and it’s time to get the party started again. But that seems to be the recommendation of the day.
We are all aware of the amusing comments from a gathering on the banks of Lake Como in Italy. They were followed by a slew of commentators gushing over the attractiveness of the BTP market. I know people like to tout the nice risk reward of a trade by saying the stop is only half as far away as the objective. Actual flesh and bones investors should require the fundamental story to carry the same sort of profile. Especially if they are going to execute another bunch of trades, or even re-handicap the ECB’s intentions, based upon it.
Carry is a powerful narcotic. Most efficaciously pursued when there is a reasonable expectation of some semblance of calm. A majority of the people I talk to don’t think volatility is suddenly preparing to resume its gloriously delicious slumber. Stop watching the e-mini futures. Yet, I’ve got an inbox with oodles of folks telling me things are “overdone”, luscious opportunities are beckoning and all we have to do is winnow out the wheat from the chaff.
That may be true and I’m being overly cautious. But dismissing the concept of “contagion” as a momentary, panicky phenomenon may equally be overly bold. Especially as I’m staring at a launchpad view that reminds me that the MSCI Emerging Markets Index made a new low on the year just this morning. And their EM Currency Index, at least on my charts, isn’t screaming, “quick, catch my falling knife.”
I detest the concept of purchasing power parity. But I understand its potential allure. If it does have any usefulness, it is over a long period of time. The same is true, on both counts, trying to analyze currency movements in terms of correcting for, or exacerbating trade flows and current account deficits. It’s risky, and not very nice, to talk to traders as if they are economists.
It’s probably a good day to take a deep breath and see how prices play out. It won’t be the last chance you’ll have to get involved. Aside from basking in some feel-good comments and getting excited by the lull, you need to ask, what, if anything, has changed.
The post “Algos Ain’t Investors” Trader Warns Quiet Markets Don’t Mean Safe Ones appeared first on crude-oil.news.