{"id":40683,"date":"2018-11-18T18:24:12","date_gmt":"2018-11-18T23:24:12","guid":{"rendered":"http:\/\/olduvai.ca\/?p=40683"},"modified":"2018-11-18T18:24:12","modified_gmt":"2018-11-18T23:24:12","slug":"bear-market-growls-as-market-remains-weak-11-16-18","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=40683","title":{"rendered":"Bear Market Growls As Market Remains Weak 11-16-18"},"content":{"rendered":"

Bear Market Growls As Market Remains Weak\u00a0<\/a><\/h3>\n
\n
\n

\"\"<\/a><\/p>\n

Several months ago, I penned an article about the problems with \u201cpassive indexing\u201d and specifically the problem of the \u201calgorithms\u201d<\/em> that are driving roughly 80% of the trading in the markets. To wit:<\/p>\n

\u201cWhen the \u2018robot trading algorithms\u2019\u00a0 begin to reverse (selling rallies rather than buying dips),\u00a0it 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.\u201d<\/em><\/p><\/blockquote>\n

Fortunately, up to this point, there has not been a triggering of margin debt, as of yet, which remains the \u201cgasoline\u201d<\/em>to fuel a rapid market decline. As we have discussed previously, margin debt (i.e. leverage)<\/em> is a double-edged sword. It fuels the bull market higher as investors \u201cleverage up\u201d<\/em> to buy more equities, but it also burns \u201cwhite hot\u201d<\/em>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.<\/strong><\/p>\n

\"\"<\/a><\/p>\n

If you overlay that the S&P 500 index you can see more clearly the magnitude of the reversions caused by a \u201cleverage unwind.\u201d<\/em><\/p>\n

\"\"<\/a><\/p>\n

The reason I bring this up is that, so far, the market has not declined enough to \u201ctrigger\u201d<\/em> margin calls.<\/p>\n

At least not yet.<\/p>\n

But exactly where is that level?\u00a0<\/strong><\/p>\n

There is no set rule, but there is a point at which the broker-dealers become worried about being able to collect on the \u201cmargin lines\u201d<\/em> they have extended. My best guess is that point lies somewhere around a 20% decline from the peak. The correction from intraday peak to trough in 2015-2016 was nearly 20%, but on a closing basis, the draft was about 13.5%. The corrections earlier this year, and currently, have both run close to 10% on a closing basis.<\/p>\n

\"\"<\/a><\/p>\n

\u2026click on the above link to read the rest of the article\u2026<\/p>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Bear Market Growls As Market Remains Weak\u00a0 Several months ago, I penned an article about the problems with \u201cpassive indexing\u201d and specifically the problem of the \u201calgorithms\u201d that are driving roughly 80% of the trading in the markets. To wit: \u201cWhen the \u2018robot trading algorithms\u2019\u00a0 begin to reverse (selling rallies rather than buying dips),\u00a0it will […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[1597,1750,1849,8511,23055,15470],"class_list":["post-40683","post","type-post","status-publish","format-standard","hentry","category-economics","tag-algorithms","tag-bear-market","tag-financial-markets","tag-lance-roberts","tag-passive-indexing","tag-real-investment-advice"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/40683","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=40683"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/40683\/revisions"}],"predecessor-version":[{"id":40684,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/40683\/revisions\/40684"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=40683"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=40683"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=40683"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}