One of the more vicious side effects of allowing the HFT boyz to operate freely is the spawning of risk-free (for them) short squeezes. They are routine on stocks, but now have started to multiply in commodities futures markets. A squeeze in crude has been ongoing for several days, while a particularly nasty one was kicked off last night in iron ore. Of course these commodities have very bearish fundamentals, which naturally have attracted short sellers. The HFT boyz can pretty much move price where they want it – so called “momentum ignition” – so they are attacking the large short positions.
The poor fundamentals aren’t going away so these squeezes will be followed by sudden collapses as the boyz step back, having cleaned out the shorts, leaving no-one to buy.