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Algorithmic Traders Play Against Investors And Hedge Funds.

|Includes: BHC, Biogen Inc. (BIIB), CYH, GILD, SUNEQ, WMT

Some market events and facts of 2H 2015 were analyzed for the understanding and for the explanation of the hedge funds poor results.

2015 year and specially 2H 2015 were very difficult for hedge funds. Many hedge funds showed losses.

Hedge funds results in 2015 were much worse than in previous years. The index, which characterizes profitability of hedge funds HFN Hedge Fund Aggregate Index, shows 0.37% for 11 month of 2015 compared with 9.53% in 2014, the source https://app.evestment.com/shared/eapubliccontent/eahfnindices

Thus the hedge funds have not earned anything this year. David Einhorn, one of the most successful fund managers, reported about second unprofitable year in his career of Green Light fund manager. The first was in 2008. Talented fund manager is a rarity and if someone who used to beat the market over the years cannot do this now it means that the market transformed and received very specific features. SUNE was one of the worst investment in Green Light's portfolio, Valeant - in Pershing Square's portfolio. Bill Ackman counts that algorithmic trading is responsible for the current market anomaly. The analysts calculated that generally 25 shares in hedge funds portfolios provided their result losses in 2015. The list includes BIIB, GILD, WMT, SUNE, CYH, VRX and others. Practically all these shares were shorted very hard. Huge volumes were used to decrease share prices for short period, for example, BIIB was decreased by 22% for one trade day by 10x average day trade volume. Charts 1-3 demonstrate share price decreasing accompanied by huge traded volumes and option volumes.

Chart 1. BIIB: price, volume and total option volume. The price decreasing was provided by huge trade volume. Anomaly in option volume is observed.

Chart 2. SUNE: price, volume and total option volume. The price decreasing was provided by huge trade volume. Anomaly in option volume is observed.

Chart 3. WMT: price, volume and total option volume. The price decreasing was provided by huge trade volume. Anomaly in option volume is observed.

It looks as if some algorithm involved, playing against investors and successful managers in particular by pressing some limited quantity of shares. Theoretically, it is possible. If some traders have unlimited funds at a zero-rate to decrease share price without limit, the share can lower to zero. Even if all investors will keep the shares in their portfolios, the short traders can decrease the prices. Because the short traders can loan the shares and then sell. As for low multipliers, for example P/E of the mature biotech is less than for Pharma and GILD next year P/E is 8, the partisans of the share price pressing abstract from these facts as the multipliers say too much.

In 2015, veterans of the market indicate that the market has become very specific - the usual method of picking stocks does not work more. This is possible if the market started in algorithmic trading with volumes comparable to the volume of the market and algorithmic trading is used in the most perspective sectors and among favorable securities. Of course the investor has a chance to get a high-quality share in this current market. On the other hand it remains an open question whether the correction is over, or that the new realities of the American market, without multipliers, without corporative news feedback just as one global game against investor and investment ideology?

Participants of the algorithmic trading and mechanisms of the share pressure are discussed in details in

seekingalpha.com/instablog/985477-svetla...

seekingalpha.com/instablog/985477-svetla...

seekingalpha.com/instablog/985477-svetla...

seekingalpha.com/instablog/985477-svetla...

seekingalpha.com/instablog/985477-svetla...

or all in one place

seekingalpha.com/user/985477/instablog/f...

Disclosure: I am/we are long BIIB, GILD.