Get Used to the New Market Reality

 | Apr 16, 2014 | 11:45 AM EDT  | Comments
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Stock quotes in this article:

wday

,

feye

,

splk

,

crm

,

csod

,

yelp

,

z

,

goog

,

googl

,

gild

,

regn

,

biib

,

celg

,

bmrn

,

jazz

,

isis

Everything gets magnified. Everything. So if we see one biotech go down, they all go down shortly thereafter. If we see one cloud company go down, they all go down. All it takes is one breakdown in one space and they all get hammered.

Why is that? I think it is because of the algos. The algos think faster than we do. They react faster than humans can. If Workday (WDAY) would suddenly roll over, then so will FireEye (FEYE), Splunk (SPLK), Salesforce.com (CRM), Cornerstone OnDemand (CSOD) and, ultimately, Yelp (YELP) and Zillow (Z). Even Google (GOOG, GOOGL).

A Gilead (GILD) selloff immediately affects Regeneron (REGN), Biogen Idec (BIIB), Celgene (CELG), BioMarin (BMRN), Jazz (JAZZ) and Isis (ISIS).

It's instantaneous -- or at least within seconds of each other. You can key on one and bring the whole group down in a blink of an eye.

That's the algos. That's the high-frequency traders running ahead of the real sellers. That's also the baskets being put on, so if you are an insider and you want to sell one of the clouds but can't because you are locked up, the brokers will do a basket that contains the others that goes off automatically to time your stocks' decline.

We need to recognize that the algos know what we want to do and anticipate it, and then the high-frequency traders go to work to get the order done ahead of you. Sometimes I am sure they leave the shorts out there to cover at lower levels. Sometimes they just scalp the pennies.

But that's what's happening underneath. It allows for a ridiculous "All for one and one for all" vicious cycle.

It's the new reality. Get used to it.

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