Oh where, oh where, is the capitulation. As I said before it ain’t gonna happen! And the reason is algorithmic trading. At IB there is the vwap algo, and its purpose is:
To achieve the Volume-Weighted Average price (VWAP), calculated from the time you submit the order to the close of the market.
In other words an algo that is available to retail can make strategic purchases. On the other side of the coin are algos that will sell at certain values, UNLESS you have to sell.
My point here is that the market is orderly because it is being run by computers.
American markets and equity markets generally have a higher proportion of algo trades than other markets, and estimates for 2008 range as high as an 80% proportion in some markets.
When you issue a buy and sell order you don’t need to watch the market anymore. You just put in your order and wait until it is executed. Thus those that need to sell will die by a thousand cuts or will die because they have to eat their profits.
And those that want to buy will just wait, and wait, and wait. A computer has infinite patience! This is why I feel those that trade by watching the tickers are actually making their lives more complicated than it should be.
Though today some traders are starting to admit that maybe we will not get a capitulation. I do feel we have had a capitulation because I follow price movement, which I personally find more indicative of activity. And the last I looked a 45 nearly 50% movement down sounds like a pretty good capitulation.
Note: For those wondering what algos are all about do a google search on the following "guerilla sniper algo" This is what the market is all about!
"These algorithms are designed to help get an order done without creating market impact," said Adam Sussman, senior analyst at The Tabb Group, a financial services research and advisory firm.
"You always want to hide your hand and these algorithms give you a way to do that," he said.