What the trading programs can't see

To a great extent, automated trading programs are driving the stock market.  They are blind monsters out to buy new highs, capture dividends and just keep on obeying the inputted programming and algorithms.  They put money to work for the simple reason they have been thrown vast sums of money to put work. (Thank you Ben Bernanke)

Program trading, and short sellers, were the boogey men of the 07-08 markets.  But the critics are all silent now because the direction of the market is more palatable.  The fickle critics should hold just as much concern now as they once did.

The days of "tape reading" traders is over.  "Quants" crunching numbers and programs fearlessly taking massive risks are the style today and have been for quite some time.  But there are some inputs these computers are not capable of considering.  There are risks that can not be quantified and thus can not be programmed.

The geo political tinderboxes that sprinkle the world today are a cautionary to a human decision maker, but not to a trading program.  One of the benefits of program trading is they cant get "scared" by these risks that often never develop into full blown market moving events.  These programs will buy the closing high on a Friday even if the Iranian Army is amassed on the Syrian border, or the Chinese have a couple of million troops on the Yalu. Computer trading programs have no fear.

A case on point was Obama's trip to Israel.  The old "rule of thumb" for traders was that you should never go home owning stocks when the President is out of the country.  Too many things could go wrong.  But the market cared not for the old rule.

Geopolitical risks are not being fully considered in today's stock market for they cannot be quantified for programming input.  Perhaps they are hollow risks. Israel and Iran have been "on the brink" for the past 3000 point advance in the Dow.  But let us remember, and let us remind those who held program traders as culprits in the 07-08 market free fall, the door swings both ways.


Bruce Johnson


To a great extent, automated trading programs are driving the stock market.  They are blind monsters out to buy new highs, capture dividends and just keep on obeying the inputted programming and algorithms.  They put money to work for the simple reason they have been thrown vast sums of money to put work. (Thank you Ben Bernanke)

Program trading, and short sellers, were the boogey men of the 07-08 markets.  But the critics are all silent now because the direction of the market is more palatable.  The fickle critics should hold just as much concern now as they once did.

The days of "tape reading" traders is over.  "Quants" crunching numbers and programs fearlessly taking massive risks are the style today and have been for quite some time.  But there are some inputs these computers are not capable of considering.  There are risks that can not be quantified and thus can not be programmed.

The geo political tinderboxes that sprinkle the world today are a cautionary to a human decision maker, but not to a trading program.  One of the benefits of program trading is they cant get "scared" by these risks that often never develop into full blown market moving events.  These programs will buy the closing high on a Friday even if the Iranian Army is amassed on the Syrian border, or the Chinese have a couple of million troops on the Yalu. Computer trading programs have no fear.

A case on point was Obama's trip to Israel.  The old "rule of thumb" for traders was that you should never go home owning stocks when the President is out of the country.  Too many things could go wrong.  But the market cared not for the old rule.

Geopolitical risks are not being fully considered in today's stock market for they cannot be quantified for programming input.  Perhaps they are hollow risks. Israel and Iran have been "on the brink" for the past 3000 point advance in the Dow.  But let us remember, and let us remind those who held program traders as culprits in the 07-08 market free fall, the door swings both ways.


Bruce Johnson


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