The Dow Jones ends on a high and markets have recovered from a week of remarkable peaks and troughs. For now. Share prices whip-sawed. So is the market mad? The answer is yes. Much of it is now being driven by computer trading and margin calls on hedge funds, forces outside our control.
David K Randall from Associated Press doesn't blame it on the computers, it's the people operating them that are causing the volatility. "Technical traders all but ignore fundamentals, such as corporate profits or expected growth rates. Instead they rely on stock-chart analyses that signal when to buy or sell the entire U.S. stock market. In the absence of clear signs about the economy's direction, more of Wall Street is turning to technical trading. When the charts say "sell," a herd of sellers emerges, magnifying declines. If prices fall far enough, another wave of technical selling is triggered and the decline is intensified. At some point, a threshold is reached where the charts say "buy," and stock prices get whipped higher."
David Louie at ABC News says it's the speed of trading that does it. "Computer experts say it takes three microseconds to execute a speed trade and one microsecond to receive data about a company's stock."
Let's put that in perspective. A speed trade takes three microseconds, blinking your eyes takes 350,000 microseconds.
So how do we fix this? There are no clear answers here. As Daniel Indiviglio, associate editor at The Atlantic writes,getting rid of speed trading might make the market less efficient. There is no clear fix. "Technology and quantitative analysis aren't really our enemies, but they certainly aren't helping matters,'' Indiviglio writes.
But what it does tell us is that the market has changed. It's no longer about investing in companies. It's now a casino.
no comment untill now