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Robots run amok?

  #5 (permalink)

Legendary Market Wizard
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TWDsje View Post
There are two characteristics of this market that lead me to this conclusion. The first is a significant lack of liquidity. Before this move started it was common to see 3k offered at any level in ZN. At some major points such as before options expiration we were seeing 5k and even 10k's put on the DOM. Last week we were barely seeing 2k, and at some points they would only put up 100 on the inside levels. This is not the first time we've seen this. This is exactly the same behavior we saw during the flash crash in 2010. Some market making algorithms start losing so much money that the operators just turn them off completely, and liquidity dries up.

Isn't that an argument that contradicts your title? If in normal times the Algo's keep the market in order, but when volatility picks up they pull back and the market goes nuts, isn't it the lack of the presence of the robots that hurts the markets?

TWDsje View Post
The second characteristic I see is extremely one sided trades. This is particularly pronounced in treasuries where despite huge flight to safety moves up, the overall trader positioning is short in record numbers. We also saw huge moves as the short volatility trade predictably blew up in everyone's face. This coincides with numerous research firms and quantitative analysis with models predicting significant drops in equities if the 10 year yield gets over 3%.

Do you think the robots have record short positions or is it PMs and Quants?
I'm not saying that I think your wrong, just that you gave two characteristics that I think oppose what you were claiming.

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