Question for you stock market experts

[NTDawg]

I have been paying more attention to the stock market than I have in the past. One thing that I noticed was the sharp increase in the volume of trading late in 2016 that has continued. What changed? I assume it was related to new technology that allows for automated trading done by computers which takes the place of decisions made by people? If that is true does that contribute to the market swings that we are seeing? It is making the situation worse or is it helping?

 

[Drebin]

I have been paying more attention to the stock market than I have in the past. One thing that I noticed was the sharp increase in the volume of trading late in 2016 that has continued. What changed? I assume it was related to new technology that allows for automated trading done by computers which takes the place of decisions made by people? If that is true does that contribute to the market swings that we are seeing? It is making the situation worse or is it helping?

My take on it is that there was a dramatic upswing in 2016 partially for reasons you mention, and partially because of the new administration that came in at the end of that year and prioritized deregulation and America-first trade agreements. A lot of folks that were sitting things out or were being very conservative jumped in at that time.

As far as the market swings, it's the same as it always is - speculative uncertainty. The market is reacting in real-time. I watched it jump 1500 points the other day while the President was giving a speech. There are significant headwinds as well - as the global markets are falling, that is putting stress on ours. But since our economic fundamentals are strong, I'd expect a rapid bounce back once this virus spread stabilizes and people start to feel like it's under control.

 

[RBDog82]

I have been paying more attention to the stock market than I have in the past. One thing that I noticed was the sharp increase in the volume of trading late in 2016 that has continued. What changed? I assume it was related to new technology that allows for automated trading done by computers which takes the place of decisions made by people? If that is true does that contribute to the market swings that we are seeing? It is making the situation worse or is it helping?

At a high level, yes, the use of computers and algorithms by hedge funds and other institutional investors has definitely led to increased volatility on both the downside and the upside. Some hedge funds use options / futures to make outright bets on volatility, which leads to increased volatility, which leads to other hedge fund algos triggering sell orders, which leads to increased volatility. It becomes a vicious downward cycle because the amount of investors that are long volatility (meaning they profit when volatility increases which coincides with selling stocks) overwhelms the amount of buyers, so the bid-ask spreads get wider and ultimately there are very few buyers to step in.

 

[NTDawg]

Maybe you are referring to the same thing but I'm asking about the trading volume that increased around Dec 2016 not the value of the market.

 

[Drebin]

Maybe you are referring to the same thing but I'm asking about the trading volume that increased around Dec 2016 not the value of the market.

Yes, I'm saying ease of access, combined with a favorable environment to jump in, has led to a larger volume of trading, which also contributes to the level of volatility that we are seeing now. But I'm no financial whiz, either.

 

[UpTheMiddlex3Punt]

It's much more mundane than what everyone here has said so far:

https://stockcharts.com/articles/do...ith-that-intraday-volume-on-the-dow-indu.html

More or less, they changed what they were counting.

 

[o_MojoJojo]

Here's your answer?

EDIT: Never mind; what UpTheMiddlex3Punt said.

"Effective 5-Dec-2016, SPDJI’s intraday index calculations started using prices from the Consolidated Tape of all recognized U.S. exchanges. Following this change, all eligible prices and volume as reported through the Consolidated Tape have been included in the intraday index calculations for all indices covering U.S. equities. The increase in volume for all the indices mentioned below is due to this change and the values received are correct."

https://stockcharts.com/articles/do...ith-that-intraday-volume-on-the-dow-indu.html

 

[horshack.sixpack]

Trading volume has long been dominated by algorithmic models and high speed automated trading (somewhere in the 80 - 90+% of all trades range). My opinion on automated trading is that it should push people toward more fundamental investing because you won't outpace the machines with market timing. Stocks with solid fundamentals will be better long term. I really like ones that pay dividends. I also say hire a reputable RIA and don't try to structure your own portfolio. That is my common refrain. I have my real money with an RIA. I have a play money brokerage account that is not a big part of my investment strategy but allows me to have a little fun with research and stock picking.

 

[NTDawg]

It's much more mundane than what everyone here has said so far:

https://stockcharts.com/articles/do...ith-that-intraday-volume-on-the-dow-indu.html

More or less, they changed what they were counting.

Makes sense. They went from actual attendance to the LSU baseball method of ticket sales