Market Analysis

The Program

Kill the algos before they kill us. If you haven’t noticed there’s a specific program running through markets this August, it’s not humans making collective price decisions, it’s algos playing ping pong with price in a specific fashion, I call it the gap, ramp and camp program.

First note that at this stage there are no more down days, all 2 way price discovery has ended. While this has happened plenty of times before, especially in summer months, it is nevertheless notable that we haven’t even had a single red candle on $SPX since July 29 so one way oriented is the price action:

But that’s what happens when there is no volume and no sellers, indeed one can argue that markets were exhibiting similar behavior in the lead up to the February top and perhaps it is ironic that markets are acting in a very similar manner again at the same price levels, low volume, tight price ranges amid a steady drift up:

But what’s especially notable is the precision with which the gap, ramp and camp program is being executed, virtually every day is the same:

A sudden ramp leading to an overnight up gap in many cases which either fills or not, then a consolidation period in a very tight and precise range which can last a day or 2, then another ramp leading to another overnight up gap, then more consolidation again in a price price range.

And note each time the precise back and forth on the upside and downside, like invisible walls of resistance and support. The occasional “mistake” break in the range is immediately “fixed” and the ping pong continues until the next ramp and gap.

Rinse and repeat. What is eerie about this is that all of this is happening in context of the highest most vertical extended market valuations ever:

Valuations or forward multiple don’t matter until they do, but it is notable that a market now valued at north of $34 trillion can be held in such tight price ranges virtually void of any 2 way price discovery.

Price compression doesn’t last and with lack of 2 way price discovery on the way up price gains are to be viewed with extreme caution and with a close eye on the exit door for, as we also saw in February, low volume, gap driven price gains can disappear much more quickly then they can appear.

While people are inclined to already want to forget the crash of February/March note that then 3 months of price gains disappeared in 5-6 days, in case of the $DJIA 4 years of price gains disappeared within a four week time frame.

Not predicting anything similar here, but observing the program that is currently running and knowing that the program can change on a dime with far reaching consequences. But for now the program keeps running. But know markets keep getting ever more expensive with every sudden ramp.

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Categories: Market Analysis

14 replies »

  1. another great analysis ! The market algo’s are intent upon creating the greatest bubble in history….to be followed by perhaps the greatest correction/collapse in history….and the little guy will bail ’em out no doubt

    • Sven, thanks for the daily dose of reality. It really helps to maintain sanity. But at some point don’t we have to say so what? All the players understand the excesses but the beat goes on.

  2. Is this the same algo that allows the market to sell off hard on the open and then rip straight up at 11am and rally into the close?

  3. Just keep nodding my head as I read your – spot-on – analyses, Sven.
    An alternative universe. As you have observed, “Risk happens fast”!

  4. Of course. But the program has also infected most of the active human traders now, too. Markets don’t go down so it is foolish to sell, there is no sane alternative to buy while this paradigm persists.

    Logic and history clearly insist this cannot continue ad infinitum. Good luck to all in picking the moment, several plausible triggers have been ignored in recent weeks. My gut and brain keep saying it can’t be far away but I have been wrong so far. When the paradigm changes the correction will likely be quite epic. Note gold and silver action on 11th August and that fundamentals support higher gold prices but clearly don’t support higher stock prices.

    Yet again today, 12th August, there has been a half percent ramp in the hour prior to european open.

  5. Who is to say that the Fed and/or Treasury don’t have their own algos behind the price action. The US markets are not real. You won’t find any tradable market on the planet that trades 10 days up without a pullback. Statistically not plausible.

  6. The real “Program” is a stealth tax called inflation, in which we all get poisoned while the fed pretends it does not exist by using manipulated data. Look up the “Chapwood Index” of the most used items, and it will show 5-10% inflation per year over the last decade. I would guess the plan is to make everyone a wage/debt/healthcare slave via inflation, and buy votes via the magic money tree? Hard to predict the end game, but “the program” may be hidden, but is real…

    Even CNBC is starting to let it’s readers know inflation is real and coming fast, per article today:

    In the CPI, the cost of some services jumped sharply. Motor vehicle insurance was up 9.3% in July, on top of a 5.1% increase in June. Wireless telephone services rose 3.6%.

    Goods also rose. Prices for used cars and trucks climbed 2.3%, while new car prices increased 0.8%.

    Airline fares also rose, up 5.4% in july, on top of a 2.6% jump in June. Shelter costs rose 0.2%, or 2.3% year over year

  7. I bought a triple short ETF yesterday at the highs, so you can thank me for moving the markets back up today. I always set the stop at break-even at open, so no skin lost. Being the only short on planet Earth, I tricked “the program” into panic buy today to teach me a leason that you should never fight the Fed. Your welcome America!


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