Sunday, February 23, 2020

#S&P500 Review $SPX $SPY Flash Crash Possible?

SP 500 Review
Those that view the message of the market on daily basis are likely confused by trading noise. While trading noise contributes to the long-term trends, it does not define them. Human behavior tries to explain trading noise as a meaningful trend. This confuses the majority which, in turn, contributes to their role as bagholders of trend transitions.

Subscriber Comments

Expansion of the coronavirus outbreak, unexpected success of Bernie Sanders in the early primaries, and fear the bull market is too old has raised the discussion of Flash Crash. Is this discussion hype designed to generate clicks or a real possibility?

Regular readers already known another Flash Crash, or worse, is inevitable. Exchange volumes have been contracting steadily since 2008 (see SP500 Monthly Volume). February monthly volume is approaching and may break the 2011 low; the current downward spike will continue to climb as February continues. It's a short month, so new low is possible.

Volumes are contracting, because money (not labor) continues to fall off the grid for various reasons. Reasons include the fall of socialism and the debt that supports it to demographics.

Falling exchange volumes and the rise of program trading means markets are highly dependent on machines for daily trading action. Machines loves to flood the market with buy and sell orders. Massive buying and selling bursts overwhelm the specialists, thus, creating Flash moves. A large influx of inexperienced investors/traders lured in by no cost trading only adds fuel to fire.

The next Flash Crash only needs energy, distortions between price and risk, and a spark that changes money flows at least short-term. Do we have them?

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