Late Day Program Trades

Discussion in 'Trading' started by Tide31, Apr 25, 2009.

  1. Tide31


    We have all been affected by the late day massive programs as of late. I have seen several explanations for these but consider none credible. If anyone has any intelligent feedback on the subject I'm sure we'd all much appreciate it.

    Here's what we know:

    -According to ZeroHedge and other bloggers and stories, quant funds are having their worst year ever (down 20+%). Perhaps we are seeing massive liquidation from some of them, or desperation and overtrading to make up for losses? The best time to sell something is into strength. This is one explanation for the selloffs which seem to start in the financials, but lead to the overall market getting whacked by 10+ S&P handles and 100+ Dow points in a matter of mere minutes.

    -They are not just Index Arb programs because they are one-sided. In a program we normally see a selloff of stocks, followed by a purchase of futures afterward. This happens often during the day and is the reason for the whipsaw's we see during the day. This would be a sell program.

    -I have gone back for the two massive sell's this week and checked the volume in e-mini's and Spy's alone and it is staggering. Assuming that 2/3 of this volume is piling on and stops, the 1/3 assumption of a 'program' is staggering. I'm talking about $100 Billion liquidation in a matter of 5-10 minutes. Even with terrific leverage which is allowed in Index Arb because it is considered 'riskless', who has this size position on? I worked at one of the largest bulge bracket banks and our Index guys were considered one of the biggest. The biggest their hedged book ever got was $30 Billion, and it was unheard of to liquidate it all at once. I think it's safe to assume these are not coming from Index Arb's.

    -The sells seem to come at a specific time, like 3.41pm right after imbalances are announced. They can't be one firm or fund. In this day and age, no one would be stupid enough to coordinate/collude programs at the same time with a competitor or friend, but maybe algorithms are set off coincidentally by the first big one?

    -The popularity of ETF's and financial 200-300% Bull/Bear Financial ETF's are an explanation for open and close imbalances from the Custodian/Prime Brokers. This volume has been estimated at only 3-4% of the NYSE volume this week in an article in the WSJ so it cannot be responsible for it.

    :confused: :confused: :confused:
  2. rdg


    The one on Friday was news from S&P regarding the corporate default rate. But I'm with you that the notational value of the ES trade is tough to grasp.
  3. piezoe


    Thanks, Tide, for one of the more intelligent posts in a long time. I'm going to think about it. Posts such as yours are one of the few reasons i continue to bother with ET.
  4. When its one of those last minute rallys on the upside... you can bet your $ its the....

    Plunge Protection Team

    "Plunge Protection Team" was originally the headline for an article in The Washington Post on February 23, 1997, and has since become a colloquial term used by some mainstream publications to refer to the Working Group. Initially, the term was used to express the opinion that the Working Group was being used to prop up the markets during downturns.
  5. Tide31


    I saw that, but having traded distressed we knew the corporate default rate would be in the 13-14% range later this year. This type of old news seems to trigger some, I think it might have triggered the first one at like 2.30pm not the late one. We also saw one triggered last week by the 'GM to miss coupon payment'. If you are a PM and thought GM was going to shell out $1Bil this month to bondholders, you deserve to be fired if that caught you off guard.
  6. nevadan


    Great question Tide31.

    Regarding the liquidation idea, it seems like it would be better to be a little more subtle about a liquidation than the massive pulse that seems to be simultaneous across the broader market. Selling into strength makes sense but all at once? Also, the market recovers rather quickly from such a large volume of selling. The chart is from Friday and is built from one second data. Time is PDT. As you can see the character of the market changed at 11:00. The tick started making wild swings and the breadth, brokers/dealers, and net volume were pretty much in lockstep. The black boxes were in control, but who's boxes and why? Beats me but it seems pretty clear that it is massive and unidirectional, both up and down.
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  7. Tide31


    Another bizarre program at 3.41pm. Every single stock I punched up had an order imbalance on the sell side with the 3.40pm imbalance data, yet the SPY went from 85.60 to 86.40 in a matter of minutes soon after. I went with my gut and shorted into it at 86.13 and held on til 4.30pm, because they stopped trading in US Steel (X). Earnings were due tomorrow and they rarely stop trading in something for good news. Covered at 85.65 after dismal news from X. Not a great trade, one put on for spite more than anything else, usually never a good idea. I can't wait to read the book as to who these programs are from. I just can't accept the fact that its just traders short into the imbalance data today, then all stopping each other out when they are right. Any more thoughts from anybody?
  8. Tide: the market did exactly what it should do today and the other days, but I cannot write the reason here because it would not be fair to do so.
  9. Tide31


    Helpful, thanks. The market should have gotten hammered yesterday and it was artificially propped up. Therefore it will get hammered today on the open by 200 points.
  10. If you don't have anything intelligent to add, don't speak.

    #10     Apr 28, 2009