Uncharted Waters – Part 2

By Andreas Roell


In part 1 of my post, I left you with a question.  What would be the lasting impact of these unprecedented recent stock market events we just experienced?  It is still uncertain if this is a blip or the start of a new market dynamic.  


I did predict a strong likelihood of regulatory scrutiny which started last week with the new U.S. Treasury Secretary Janet Yellen, calling a meeting of key financial regulators to discuss market volatility driven by retail trading in GameStop and other stocks. I believe this is just the beginning of scrutiny from the regulators that will continue.


Back to my question regarding market dynamics, we have all witnessed the power and influence of social media and its ability to turn politics upside down, and we can now clearly see it can do the same for the financial markets. 


Social media sentiment and trend analysis is one that has been around for some time, but we will likely hear more about it as a shiny object for algorithmic / NLP traders.  Rest assured, this trend is something that will be discussed heavily throughout this year and beyond.


What I am more interested in is monitoring how much of a fad this scenario is or not. A couple of key points here:


  • I still believe that retail investors will ultimately get hurt by this directly or indirectly.  The same “mainstreamers” that are taking down the big hedge funds have their 401(k) and retirement savings invested with them. 


  • The more volatile markets become (for me volatility simply means more confusing and less systematic) the harder and frustrating it will be for retail investors which will translate into frustration and heartburn.


Instead of heralding a new wave of investor populism, the rise and fall of GameStop’s stock may end up reinforcing what the financial industry has known for a very long time.   Namely, the fact that they have infinitely more access to tools, data, and resources than the average retail investor.   Click here to read more about who benefited during the Reddit trading frenzy.


At AlphaTrAI, we do not solely rely on the historical data because it is fragile to these specific and unpredictable events. However, our algorithms daily monitor market events and we remain steadfast in our approach to have a high appreciation for tail risk events.