Why don't HFTs just start ramping AGNC into earnings now?
I see, in that case I apologize for misinterpreting your algo-related comments the wrong way. I did get the impression that you thought it was just on those flash crash days.
Also, just to reiterate- im not in any sense advocating TA over fundamentals in anyway. You are completely correct of course to note that fundamentals always win out *over time*. Ever happen to read "expected returns" by antti ilmanen- its one of my favs.
However, I reject the contention entirely that the two waterfall plunges in AGNC were driven by fundamentals. Ill certainly give you the point about the perception of the participants etc. But dont tell me the algos werent there slamming the stock as hard and as fast as they could in those days in order to trigger as many stops as possible. Stop hunting is 90% of their bread and butter, and boy did they hit A LOT of stops on the way down to $28!
I honestly think the idea that such a fast collapse was caused by fundamental uncertainties totally fails to cover the scale of that decline. Sure you could argue fundamental uncertainties caused the collapse but I could just as easily argue the brief rally after QE3 showed confidence in management being able to use the situation to its advantage. No need to reiterate the pros/cons of QE3 for AGNC but to defend the stocks plunge along fundamental lines, your argument would basically have to be: the market just changed its mind about the fundamentals all of a sudden (4 weeks after QE3 announcement) and at the exact time the stock *coincidentally* happened to also break the 50-day MA!
Regarding algos, your statement is totally accurate: "the only people they screw are those unlucky enough to time their transactions out of sync with the bot". Precisely! Just like all those AGNC shareholders who held the stock after it exhausted its bull trend. Look, on Oct. 5th the stock was at $34.90. It broke the 50-day the next Monday and then plunged about 10% in less than 10 days.
Dont give me that BS about time horizons. Time horizons are the ultimate excuse for lack of performance every putz on bloomberg comes on and rightfully notes that on a 3-year window stocks will do just fine...
In the case of AGNC, no shareholder should have sat there and lost 10% of their capital (20% by Nov) when the signals are so obvious that a techincal plunge is coming
How do you know a major plunge is coming? Simple, when a bond fund that has been rallying with bonds fairly closely over the past 6 months, keeps rallying after QE3 even after bonds start falling hard, is a HUGE warning signal. AGNC was rallying with bonds but now rallies with high beta equities- the equivalent of having its cake and eating it too.
If youre not selling at this point, the least you should be doing is setting your stops up at the 50-day MA.
Because algos feed on stop hunting. So you know right away that a stock like this, in a WAY overextended Bull trend will get CRUSHED by stop-hunting algos on the way down.
So yes, at the end of the day you are right: one cant predict algos through geometric patterns (thats about as effective as Elliott waves!) but you CAN predict that when a "winning" stock like AGNC becomes overextended and loses momentum in a bull run, it will fall HARD as the algos pick off stops so fast that it induces a viscious cycle of panic selling fueling more stop hunting.
This isnt exclusive to AGNC, in fact it would be much faster listing stocks this hasnt happened to!
All I am saying is that by following these simple and obvious indicators- someone who is long AGNC for fundamental reasons, can get out strategically and get back in 3 months later with 20% more stock.
And how do you get the signal to get back in? Simple, as I mentioned the correlation to dead-beta stocks broke down quite clearly (see the apple chart) and flashed a clear buy signal shortly after the ex-date. I feel sorry for all those people that waited for a sub-$28 price or that thought the lows would come at the usual opex dates.
Anyway, that really is it from me- all the best to you in your future trading...