THIS WEEK
Given the index setups, this could actually be a week that decides some direction. As noted earlier, the volume was not such that would indicate the algorithms decided it was time to dump all stocks in a sell the rally move.
Therefore, as we are not, as some seem to believe they are, omniscient with what the self-thinking algos are going to do, we just prep for what can happen off this selling.
That raises a very interesting point. When ETF's started to gain popularity, I believed that was the start of the destruction of the markets. Not that ETF's were the problem themselves, they were just part of the preparation for market demise.
They allow lazy investing, and the irony is, they do not reflect the dollar for dollar moves of the stocks that comprise the ETF. That is up to the ETF management, within certain limits of course.
As ETF's grew in popularity, you started to see market distorting movements. Stocks would move intraday, but the ETF's would not follow. Then, in the last hour, large index price moves occurred as the ETF's were brought more in line with the days' trading action.
Now the next step is in place: algorithms running some very large funds and thus lots of money, coupled with smaller robot advisors that tell investors what ETF's to place their money. Then it is all turned over to the machines. People playing the ETF game get unmercifully whipsawed as they are rebalanced in sudden moves. It is like a mini expiration session every session.
If you pay attention to how the algos trade you, how they accumulate shares, etc., you recognize the tracks just as always, regardless of who manages the money. That is why the false breakdown proved to be such a good entry for us: program trades and algos were taught to buy those, and they have dutifully done so for years. Thus, what does the current situation on
NASDAQ, SP500, and SOX show? Another break of support that could be a false break.
In any event, this is going to lead to the destruction of any real price-finding market. When the machines take over most of the action, that will be the day the market ceases to reflect what markets have always shown, e.g. the belief of investors as to the economic future, and will instead reflect only the reactions of each algorithm and program to the headlines that appear in the news ticker.
That puts a whole new angle on 'fake news' does it not? You have seen how a planned rumor can move a stock, even the market. Just think what happens when hundreds, even thousands, of headline-reading programs react to each headline, and then what happens when the ETF's are then 'balanced' at the wnd of the session to reflect the latest headlines? Destruction of markets.
Source: Investment House