The Quick Descent and Ascent of Accenture

I find last Thursday stock market mayhem fascinating because I don't think it was just a glitch. I think it was a watershed signaling a new era of occasional extremely weird or volatile stock market behavior.

A comment I posted over on Hacker News in response to a somewhat insightful blog, but one that I think misses the big point:

"If there are crazy computer algorithms in the market doing crazy things, guess what, that makes it much easier to make money! We rational humans can outsmart algo's gone wild with ease, right?"

Wrong. I'm sure the dive in Accenture, et. al, happened so quickly that no human had time to react. Here's the graph:


http://www.google.com/finance?q=accenture

And I'm sure even that misrepresents to some degree the speed with which the blip happened.

That's the lesson I took away from this. Don't even think of trying to out-react a Wall Street supercomputer. If I was a day trader, I'd hang it up.

Are we going to get to see the logs for the Accenture trades on that day? I'm guessing that it was a handful of algorithmic trading systems belonging to major institutional investors — or a couple trading bots belonging to the same house! — that got into some weird feedback loop that drove it down and then right back up.

What's interesting to note on the graph above: there's a major spike in trade volume, but it appears to come about an hour before the drop.

And I think this response from msy to my comment hits another key point I've been raising in my discussions of this event:

It's worse than even that. Because top-tier hedge funds and investment banks can afford the genuinely insane fees to put their gear as physically close to the exchange as possible they can effectively front-run everyone else including other algo systems, which in situations like this it is particularly advantageous. The nature of the inequal playing field, combined with warring algos mean there is now no real connection whatsoever between an instrument's price and reality below a certain time period. Insane doesn't begin to cover what we've created and the power it wields.