Co-movement Mysteries

Hi Stewie:

Here’s some bad stuff. http://www.cnbc.com/id/38057120 It tells how 78% of S&P stocks are now showing co-movement. I think this means that every little wiggle in the chart is moving with the market. And I would guess that this means a stock – that’s been selected for breakout potential – will follow the market instead of behaving individualistically and breaking out like it was supposed to. It could be that the robots are changing the basic rules. Even in the last year or so there may have been significant change.

And here’s a related but different topic that’s been bugging me. I do not understand how co-movement happens. Let’s say you are scalping FAS. Suddenly with no warning there is a sudden drop – which comes back up in two minutes. They call these drops “market maker stop sweeps”. Stops get hit - or the scalper gets scared and sells – and either way the market maker can buy the stock cheaply. OK – that’s probably true. Trouble is – the drop will happen through out the market at exactly the same time. Are all those market makers on the phone with each other coordinating the sweeps? Not a likely explanation. So what is the explanation? I wonder if anybody knows. I googled “co-movement” looking for academic papers. But it was all about longer term co-movement – not second by second.

Tom