NEW YORK - The latest leg lower in U.S. stock prices has put them in a danger zone that could trigger so-called "mechanical selling" pressure and accelerate a downside move, according to Nomura strategist Charlie McElligott.
On Wednesday, the S&P 500 dropped to 4,401.38, near a a four-week low, putting the index on the verge of setting off a deluge of "mechanical selling", or stock selling by options dealers and certain trend-following investors, including commodity trading advisors , Nomura’s McElligott said. The drop in the stock index means options dealers, typically large banks or financial institutions that buy and sell options contracts to satisfy demand from investors, could add to any market weakness by selling stock futures as the market declines.