Bear Market Growl Grows Louder

Bear Market Growl Grows Louder
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Authored by Lance Roberts via RealInvestmentAdvice.com,

Several months ago, I penned an article about the problems with "passive indexing" and specifically the problem of the "algorithms" that are driving roughly 80% of the trading in the markets. To wit:

"When the 'robot trading algorithms'  begin to reverse (selling rallies rather than buying dips), it will not be a slow and methodical process, but rather a stampede with little regard to price, valuation, or fundamental measures as the exit will become very narrow."

Fortunately, up to this point, there has not been a triggering of margin debt, as of yet, which remains the "gasoline"to fuel a rapid market decline. As we have discussed previously, margin debt (i.e. leverage) is a double-edged sword. It fuels the bull market higher as investors "leverage up" to buy more equities, but it also burns "white hot"on the way down as investors are forced to liquidate to cover margin calls. Despite the two sell-offs this year, leverage has only marginally been reduced.

If you overlay that the S&P 500 index you can see ....

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