How do we analyse the "algo glitch" on GBP?

[Mercury]

Algo glitch?  Yer 'avin a laugh!  I understand the reaction to the Swiss franc removal of the peg to the Euro and there was outcry over that one but at least one could make some sense of it and it isn't like people didn't know there was a peg, or at least they should have known it if they were trading the Swiss Franc, but no such logic can be made of the GBP move at midnight.  I wonder if the company responsible for the "algo glitch" will be investigated and brought to account?  I doubt it because the system is moribund and we soooooo need a serious crash to prompt a total reset.  BTW, if you think this sounds like sour grapes it isn't, I have posted my views on this before and I didn't lose anything last night.

 

Anyway on to what it means for technical analysis.  It doesn't mean anything except it makes using the charts **** annoying...  For me I will wait to see how the weekly and daily candle ends today to try and put this lunacy (or fraud?) in its proper place.  If we see a low NFP, in line with or worse than ADP then the idea of a Fed rate rise (which has been gathering momentum for Nov/Dec) would be knocked back I guess.  If this produces a drop in USD then the entire overnight move on GBP could become a tail, which from a technical POV should be cut off.  If the reverse happens then we have seen, or are about to see breakouts of critical support/resistance zones across many FX pairs and the overnight spike on GBP has simply shown the long term direction.  Long USD and Short just about everything else.  This would suggest the beginning on the end thought wouldn't it?

 

Once again we arrive back at NFP becoming critical, not for an indication of how the US economy is doing but for whether the Fed will raise rates or not.  The entire financial system and markets seems to be in thrall to this one single issue, and still there are people (AKA the central bankers) who say the system is fine and is working...

 

All I can say is I'm staying out until this thing is over and a clear direction is established...  If last night taught me anything (and I was simply lucky I was not either in or holding stop-in orders) it is that you cannot trust the markets just now, there is no fair price discovery and algos should be made unlawful.

 

To quote the best ever cop drama (Hill Street Blues) "Let's be careful out there!"

[donaldprice]

Last night was not a market, the amount of retail traders who saw their account blow up was remarkable, thank goodness I was only analysing yesterday, but regardless this really should be looked into. As stated in Casey notes article, we have all called this to parity, but common, in 2 minutes especially eur sterling, markets do not work this way. These flash boys really need to have a leash, its like if they where acting this was going to be the last night you where going to make money, same rhetoric that happened in 2008. I am afraid that some regulation may be coming down the line, nothing against algo trading, but this seriously cannot happen, because all you do is drive liquidity providers away from trading sterling crosses.

[Mercury]

Unlike you  I do have something against algo trading.  It is a manifestation of all that is wrong and corrupt in our global financial system in my uneducated view.  Regulation?  No!  We need a complete rethink and get back to the original ideals of the market places.  Right now, and for a long time, it has been a place for financial institutions to get rich gambling other peoples money, and those other people just go along with it...  In my opinion the entire financial and economic management (or tampering) system has led us to the brink and we are very likely to fall over the edge very soon.  This is not just paper stuff or databytes but will serious impact real world people, countries and the geopolitical landscape.  A fact the city spivs are totally ignorant of and probably could care less so long as they can buy the Lamborghini they have always wanted.  Honestly, given where we are, the only way is down and the sooner and sharper it happens the better.  Maybe this time we will actually fix it...  Thought I wouldn't bet on it.

[donaldprice]

This just shows you what could potentially happen in other markets, it happened before if I remember with the DOW twice. However you do have a good valid point, that some of these algos really need to be looked at and possibly regulated much more closely, everyone is going to get the impression that the markets is rigged, specially if these flash crashes become more of a regular occurrence. And yeh sometimes in life it takes a catastrophe before individuals take notice. Markets can not operate under these conditions, it is useless performing any type of analysis when this happens. Because algos now can read news alerts, they are subject to interpretations, the FT article everyone is associating the flash crash with, did not have any key figures and no clear verification that Holland said what he said, and finally news articles do not cause this.

In summary they will look into this, and many institutions will have some serious headaches this morning over this as without many have lost more than their shirts last night.

[donaldprice]

BOE is apparently looking into this, thank goodness.

[Mercury]

LOL ! If you want a good read, purely fictional (is it?) the check out Robert Hardy's "The Fear Index".  It couldn't happen could it...?

 

Re BoE investigations, I am guessing the culprits won't even be in UK jurisdiction.  Change will take a catastrophe alas.  In the meantime maybe if we all vote with out feet thing could change but the public at large are sheep, either too bored, greedy or too stupid to realise they are being taken for a ride.  If more of us pull out to cash etc then the financial markets will take notice because they won't have any money to manage anymore.

 

Are we about to witness the mother of all corporate Darwinism?