This simple bounce off of the 20 day (orange line) could be the indication for stocks going another leg higher. Valuations are cheap, there is a healthy amount of risk, and Ben Bernacke will back us if we fall.
Here is a litle something extra from the WSJ.The people programming and running computers for high-frequency traders may be anywhere, but their computers need to be as close as possible to the computers of the exchanges where they trade. Some traders pay exchanges for that proximity. That way they can see orders a fraction of a second faster than their competitors, and withdraw their own orders faster when the computer programs indicate that is wise.
High-frequency trading got its start in stocks, but it has spread to commodities and changed trading patterns there. The computers search for correlations between different markets, and try to take advantage of them before others can do so. The result is that markets that once tended to trade in the same direction much of the time now almost always do, particularly when one market starts to move.
That was on display Thursday.
As stock markets fell in reaction to disappointing news from the European Central Bank, oil and copper prices immediately moved the same way. Bond prices rose. It was less that anyone had grown negative on copper and more that computers calculated that the two markets would move together, and assured that they did.
What can be done to preserve the advantages of technology and avoid the disasters?
Perhaps not very much. Regulators can put in rules, and programmers can put in programs, to avoid Wednesday’s mistake. But in complex systems, there may be unforeseen results of any one fix, and the profits from being first to put in some new system may lead to the use of programs with undetected flaws.
If the errors of today are too much to accept, we may have to give up some of the advantages of innovation. That could mean slower markets, with more chance for human intervention, or a move to raise trading costs enough to make some strategies that rely on fast and frequent trades simply too expensive to be worth the effort.
