ETF's and HFT's, beloved and vilified, respectively.. when combined can create a mean case of the Uglies. Today's punking of the indices demonstrate perfectly what can happen when the HFT crowd 'posts and pulls' phantom bids to, and away from, the ETF unit creator's ATM sell orders. Via this process the creators have no choice but to sell the stocks within their sector ETF's to meet investor redemptions. It becomes a decidedly sloppy process in a cascading market, with ATM sell orders chasing fading bids. The resulting volatility is usually measured by a spike in the $VIX. Oddly though, the VIX's reaction has been relatively muted to the indices' destruction over the few weeks. What we can look for is a snappy reversion of the VIX that coincidentally marks a "buyable low", most notably in the $COMP. Desperately seeking an exhaustive, capitulating washout showing the destructive dance in the ETF and HFT mosh pit has ended. Here's how that might look in the next week:
Nasdaq = 4,000 = VIX = 21
A capitulation in here would be nice to finally get, it would give us a better base to understand where this market wants to go! Too many times the indexes have corrected 4-5+% and back up it goes. There`s so many false under currents within the worlds markets nowadays it`s no reason why so many retail investors sit the whole thing out in money markets and bond funds.