Ten years ago, prior to algos dominated the markets, we’d see more buyers (generally hedge funds, diverse of which have now closed their doors) interested as prices settled, but since so many algos are programmed to lower bids and the number of divide ups as stocks drop, the selling generally accelerates. The algos pushing on and help of these thinner bids are the equivalent of throwing gasoline on a fire.
But in the past the bulls demonize this practice, keep in mind it is simply the antithesis of what happened in the first four weeks of January, when the varied the algos bought, the more they ran stocks to the upside. Why? Because the faster stereotypes rose, the more the offer side got thinner, and the more the algos bully through, driving prices higher.
Just to further highlight why these advances can be so exaggerated, keep in mind that top holdings of the QQQ, the Invesco ETF tracking the Nasdaq 100, are Apple, at 13.2 percent, Microsoft at 10.2 percent, Amazon at 9.8 percent, Alphabet at 4.7 percent and Facebook at 4 percent. When algorithmic push hits the QQQ, these five stocks account for nearly 42 percent of that forefinger.
Jon Najarian is a CNBC contributor and co-founder of Investitute.com.