I was watching closely Level 2 today for an extended period of time, and came to the conclusion that the market makers are in cahoots with each other. They don't seem to be parties with varying interests struggling against each other, rather it seems to me they have one common agenda. I came to this conclusion because I noticed how the bids and asks were slowly increasing over 5 minutes or so, then suddenly, in less than one second, all the best bids (on each exchange), and all the asks, dropped by about $.10. The alternative: one party determines, & the other MM's algorithms match of in the smae proportion.
How about if they are all very good at what they do, so they have independently developed very similar algorithms? One likely explanation is that they are all tracking some other highly correlated security (like an index futures contract), and when that sees some selling, they get less aggressive on the bids.
that colusion conspiracy theory has been around forever. back in the internet bubble, there were ax market makers and very obvious collusion. but now, it's pretty much every mm for himself. have you ever watched your stock with the s/p eminis? when the futures move up, mms raise bids and pull the ask and vice versa, they go by that. keep an eye on it, you'll see, at least for the more liquid stocks like aapl/rimm. good luck
I (gulp) work at a large Oil company that has a ton of cash to trade, and the two major trading desks are instant message users. The use it to communicate to other traders. The way I see it, there are technically based program buys and sells, that get tripped by human induced buying and selling, and my theory is that the human componant is coordinated among multiple parties with lots of money, with the "start buying when it gets to xxxx" or "meet me there" objective. They use a major messaging network that would be really fun to monitor. I don't believe the Monday "investors are nervous about economic news" stuff. The sell first, then create the reson on the fly. Nothing but canned headlines as far as I'm concerned. Tons of money can be made in a market that rades between 13000 and 14000 every month or two. The key is to create lots of fear as you approach the lows.