State of markets 13 January: The Rise of the Machines

Posted: January 13, 2016 in crash, markets, Uncategorized

After the full on falls, the markets seems to have calmed down. Is it finished yet?

Unfortunately probably not…yet. There is still some pain to go, but not much.

Why I say so?

The pattern we had since start of January has the classic pattern of the Machines attack (which is algorithmic trades software that trades 1000 positions per minute).

This January was particularly vulnerable as the FED was out and see the reaction to its interest rate move, in the US there were no Buy Backs planned plus most people were on holidays. In a market with so low volumes the Machines can reign supreme.

A bit like Terminator…when the Machines attack with such low volume the only choice is run.

Usually the Machines have a 3 days attack pattern (considering holidays they respected it…first attack 30-31 December and the 4 January – then 6-7-11 January) until they push the index in deep oversold and the stop. Now we are in a stop zone – so we need to be careful on what happen next.*

My November target  was a low under the previous of 1,867…so I would stay out.

Unfortunately, on a technical view, until this happens the SP500 is likely to be trapped between 1,850 and 2,130 (the technical low is 1782 in January 2014)

Please do not even try to short the market. As I said in a previous post “in 2015 any crowded trade (so where the mass thinks is going to happen) did not work, and it will not work in 2016”. Now the crowded trade is “doom and gloom” so there is quite a potential for a savage snap back (rally) fueled by people (and Machines) that need to cover their positions.

All in all, the idea is being calm and do not listen to the noise. Unless there is an event (US High Yield bond crisis, Iran attacking Saudi Arabia or something similar) on top of this situation this is a normal correction.

 

*For the people that do not believe it, please read an article from 2014

http://www.extremetech.com/extreme/176551-new-laser-network-between-nyse-and-nasdaq-will-allow-high-frequency-traders-to-make-even-more-money

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