Hedging imbalances could lead to epic selling
"The obvious risk is if these technical flows outsize fundamental buyers. In the current environment of low liquidity, they may cause a market crash such as the one we saw at the US market open on Monday."
Not to get too technical, but in a nutshell the abnormally steep convexity of derivatives 'gamma' will exacerbate moves in both directions, as algorithms attempt to remain fully hedged.
Therefore, as we saw yesterday, moves to the upside are amplified, to say the least. As well are moves to the downside.
Basically it means that derivatives leverage is at an extreme and unfortunately, the algorithms controlling it are all oblivious to what each other are doing.
It's all part and parcel of systemic risk which Wall Street creates and generates profits from, but society bears.
The Flash Crash retracement scenario aka. Third wave down at all degrees of trend...
Elliot Wave and Skynet both pointing in the same direction
1987 on steroids.