On Market Streaking, And On HFTs Constantly Bidding Stocks Higher

Tyler Durden's picture

From Peter Tchir of TF Market Advisors

It is way too early on a Monday morning to be sick of hearing something, but I do think I might gag if I hear how unlikely 7 down weeks in a row are. 

I went back to the middle of 1987 and looked at how many weeks in a row the market has moved in one direction.  The longest streak, by far was 13 up weeks in a row.  That ended the week of Feb 18th 2011!  So from the end of November, we went up every single week in the S&P.  Of the 11 streaks that were 7 weeks in a row on the S&P, 2 have occured in the past 18 months, and 6 of the 11 have occurred in the past 4.5 years.  From June 1987 until October 2006, the S&P had experienced only 5 streaks that lasted 7 weeks or more.  Since October 2006, the market has experience 6 such streaks, including an unprecedented run of 13 weeks in a row.  Only 1 of those streaks was negative - back in the 1st quarter of 2001.  The % of time the market spends in a streak is growing longer as well. 

Maybe this apparent increase in the number and duration of streaks is a statistical anomaly, but maybe there is something more going on.  I haven't spent much time on it, but if the data is showing a real tendency towards more and longer streaks, what could be explaining it? 

More leverage and more use of stop losses by all investors?  If investors are using leverage and stop losses more than 'doubling down' you would expect streaks to last longer as you get a cascading effect of investors being stopped out. 

Has there been a meaningful increase in the activity of macro and/or trend based funds?  Has much of the market started following the same momentum or trend or charting strategies that they become self-fulfilling and last longer than in the past? 

Have the algo's or HFT programs helped push the market in one direction at a time?  In their attempt to 'earn' trading rebates from exchanges desperate to pump up volumes, do they employ strategies that purposely or inadvertently push the market in one direction?  Do they go through extended periods where the buy first then re-offers up a fraction of a cent to earn a little bid/offer in addition to the rebates?  Is it possible they adapt and have found revenues increase at times when they short first and buy back later?  The advent of HFT's seems to coincide with the phenomena of increased streaks, so maybe this should be examined in more detail. 

Sorry if this has added to the annoyance of listening to how long the market has run in a certain direction, but I did find this interesting, and so much talk of streaking makes me want to watch Old School again.                                                                                                     

Have a great week.