SocGen: "This Is What Happens When The Algos All Head For The Exit At The Same Time"

Tyler Durden's picture

After Goldman, JPM and even Dennis Gartman all opined on Friday's "tech wreck", in which the Nasdaq tumbled 2% as the Dow Jones hit new all time highs (the only previous time it has done that was in 1999 just as the tech bubble was ramping up), and when the Philly semiconductor index fell 4.2%, SocGen's Andrew Lapthorne could not resist, and in a note released on Monday morning, explains that what happened on Friday was merely an episode of "systematic momentum selling", or said otherwise, a teaser of what happens when the algos all "head for the door all at the same time."

His advice: "when it’s time to head for the door, you better move fast."

Here's Lapthorne:

The sell-offs themselves are not particularly unusual, but the uniformity of the prices moves all on the same day indicates a market driven by price chasing momentum, with investors heading for the door all at the same time.

 

Indeed, those S&P 500 stocks which sold-off on Friday were almost all from the strongest performing decile over the previous 12 months (the r-squared on the S&P 500 line in the chart below is 85%). Within Nasdaq the relationship is even stronger at 95%.

 

 

Such a uniform sell-off strikes us as systematic, especially as the relationship weakens once you look at the broader and less liquid Nasdaq composite. For price chasing investors, Friday’s plunge serves as a warning; when it’s time to head for the door, you better move fast.

To all the human traders out there who hope to outrun algos who use laser beam to send their sell tickets to the NYSE at the speed of light, good luck.

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BlindMonkey's picture

Human traders?  Shirley, you jest.

JRobby's picture

 "when it’s time to head for the door, you better move fast."

Should be easy to beat a computer that is trading on your sell order the millisecond you push your button to sell.

evoila's picture

They are all heading for Ethereum

Looney's picture

 

Before “running for the exit”, make sure there’s actually a door under the brightly-lit EXIT sign.  ;-)

Looney

Joe Davola's picture

Is this like when all the Tesla's try to drive under the same tractor-trailer.

fx's picture

it's actually easy to beat the algos and computers. Head for the exit while hardly anybody does. Then grab your popcorn and keep your buy orders ready. Only clowns and retards buy every fucking dip (gartman etc). Serious people only by THE fucking dip.

open calender's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://bit.ly/2jdTzrM

booboo's picture

all market doors swing in, it's where you will find most the bodies

OverTheHedge's picture

This is the required technique: https://lh6.ggpht.com/d7AIV6o2R9SMhLz9LPaZcsgRLkeY_01HQDKlH31gfbbzmbALo7...

(It's a jpeg, I promise - the only example I could find, which is a surprise, given how often it appears as a theme in the original books)

((Now you're going to HAVE to look, aren't you?))

JAFAH's picture

Thx. I dunno if the great pumpkin should be running for or against.

 

Oath_Keeper's picture

...and don't call me Shirley

Drimble Wedge's picture

Have you ever seen a grown man naked?

Drimble Wedge's picture

Do you like movies about        Gladiators?

jmack's picture

Human trader here,  trading  Peter Steidlmayer's  framework to determine value and selling the top, buying the bottoms, taking trending trades when it breaks out of balanced value areas...   made $1k friday (shoulda been well over 3k, but who knew right?), and made 1.3k this morning already....

 

      I dont fight algo's, i ride them.

shizzledizzle's picture

Please, if all the algos headed for the exits the markets would be halted already this morning. 

ParkAveFlasher's picture

Right, at the sign of selloff the circuit breakers kick in, the cleanup / redistributive algos are unleashed upon the entire market pricing structure, repricing asset by asset, and when the lights go back on after a half hour or so, the whole deck is reshuffled and it's back to business as usual.

 

stitch-rock's picture

BATS almost seems designed to fail...

JAFAH's picture

Right, balanced and diverified, BTF////////D

onewayticket2's picture

arent some of the "algos" actually Fed led algos.....who do the opposite of the "market" if the market decides to head for the exits?

 

#PPT

syzygysus's picture

Hope no one puts a flock of drones in the way of the lasers.  Could halt all that front running in a millisecond.

JAFAH's picture

and their cousins the doves!

are we there yet's picture

Please video tape that for the rest of us.

Mr. Schmilkies's picture

At some point don't the algos have a BTFD line of code they execute? Just another way to screw those who get stopped out.

FrankieGoesToHollywood's picture

The NASDAQ is down to levels not seen since May!  The horror!!

small axe's picture

Difficult to know whether to make $7K a month part-time or go 3X overleveraged long and wait for SPX 3000. Or maybe make like an algo ... but what about Gartman? So confusing.

Dumpster Elite's picture

$7K a month part-time you say...hmmmmmm....sounds interesting. The only thing that could make that better if it was from the comfort of my own home.

bardot63's picture

I'm willing to bet Gartman doesn't own one ounce of physical gold.

silverer's picture

But he keeps a good supply of septic system additive on hand in case of a backup.

OverTheHedge's picture

I'm willing to bet Gartman doesn't own his shirt, let alone anything of value

Drimble Wedge's picture

Gartman is uber long paper machet so he can reconstruct himself as a pinata on a daily basis.

Peak Finance's picture

YAWN it's already over. The drop stopped, market will slowly gind upwards the rest of the Day, Fed will say somehting slightly dovish and we will all foget this before 330 Ramp Capital takes over. 

 

 

rf80412's picture

Smart money makes the market.

Solio's picture

Those are receipts. Their just as good as money!

Herdee's picture

The downside players are up against the trading desks of The Fed and Treasury. You have Central Banks openly admitting to buying up stocks and there's no transparency from the government on how the Exchange Stabilization Fund is being used. Like I said before, can the Market overpower unlimited margin from Central Bank printing and government scams? The Bond Market holds the keys.

BurningBetty's picture

Someone call in the Warden. Blinking your way forward is the only way....o, wait a minute, that was in Warcraft :-/

1stepcloser's picture

I'll take no bid for $1000 Alex

Mustafa Kemal's picture

Somewhat OT, but I have a question for my ZH investor friends.  Most of the time BTC price is a wiggly up and down function.

What does it say to you when the price locks in perfectly flat for substantial periods of time and the jumps instantaneously to a  new point and then stays flat there for a while?

I also see this in other currencies.

 

Any help would be appreciated, Thanks

jmack's picture

If the spread is wide enough during the flat time, it could be a hft style algorhytm, working the spread for nickles and dimes, then when it is turned off, you see the directional move.    

      But most likely it is just slow markets and then as it hits some higher time frame moving average, you see buyers/sellers come in that create the directional move, rinse and repeat.   it is known as ramp and camp.   when a product is trending,  it outruns value, but is still not far enough away to entice the opposite side to come in, so it just has to consolidate the move until the moving averages catch up, then the greed takes over and it moves in the direction of trend again.

Vlad the Inhaler's picture

And the VIX barely budged.

trouba z ceska's picture

PPT's algos won't sell. Ever!

VisionQuest's picture

Whoever was in charge of the Security Exchange Commission when derivitive financial instruments and electronic trading were allowed into the market is, was, and always will be a criminal and a traitor. The only thing on earth that creates genuine value in human affairs is actual hands-on-build-it-and-sell-it work. The wonks of Wall Street and their algo robots are useless eaters, like the GimmeDat class, only worse.