seems like automated trading algo's have learned to spot short interest or just large and/or many sell orders tick by tick and will, after a bit of market drop, buy purely on the offset or squeeze factor...almost a reversion to the mean based on squeezing sellers (selling as a profi trade rather than selling existing holdings)....and its strictly based on the fact that the market it pure shit and its fairly logical for a trader to sell right now...trading desks sell and then very large, Fed zero interest funded algo funds buy (and buy large) basically to squeeze any and all selling that has been done. This is done as an on-going algo strategy.
Spot the Bear. Weekly chart analysis of S&P500
- Thread starter romik
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Agreed and it follows Linear Regression Channels closely...sometimes it's so technical that it's hard to believe.. (i.e. how the market can "act" extremely bullish on Tuesday), then rollover with no signs of strength yesterday and finally start to see accelerated selling today...But as soon as it looks like an "all clear" to short (i.e. the confirmation trade), the market puts in a very convincing bottom and goes in a straight line up 3-4%.
And you can't find a more "mean reverting" market than this one...50d/200d/20d MA's all just sit right on top of each other...only in "algo-land" could a market like this one exist.
True...the offset to AAPL has been to gun the FANG's to more ridiculous extremes...
The pattern seems to be that many of the sectors rotate lower well in advance, setting up all types of divergences...the headline indicies just operate in their own bubble...they will drift lower, offset by a 1-3 day rampathon that makes the divergences even more extreme...Then there is that short term "convergence"...it can happen in 1 day or several days...
seems like there should be a historical situation where a small group of leader stocks were propping the overall market to which one could spot how/why they finally broke down and rolled the market over into a full on bear market (maybe not in 1999/2000 but somewhere). I know in 2008/2009 the home lenders and builders had fallen to their lows way before the market rolled over. I think the debt market was the final straw there as the subprime money trail was traced to the insurers, agencies and, finally, to the investment banks. Here it would be tracing the high yield energy/miners/basic materials debt to their source.
If that is the case, then the Fed (all central banks) would quickly do a reverse and start buying bad debt (more QE), but I think their balance sheet is already pretty full. This situation would, intern, lead to a run on the US dollar and then to gold.
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If trend flips into a proper bear phase, then as valuations decline that unavoidably causes 'black swan' events to take place, it's not wise IMHO to predict which firms/sectors will be the ones for definite, as that's the nature of a so called black swan that it comes out of nowhere and takes everyone (vast majority at least) by surprise.