Wednesday, August 25, 2010

Two-Step Symmetry

Here is how technical the markets have become.

The S&P 500 hit a high of approximately 1,130 and has so far had what is called a “two-step” pullback, where the first leg down equals the second leg down.

Leg 1 from 1130 to 1070 = 60 points
Leg 2 from 1100 to 1040 = 60 points

The first leg down retraced 50% of the rally
The second leg so far has terminated at the 76.4% retracement level



These are all key levels and patterns used by computers to make buy and sell decisions. The computers have clearly taken over the markets. I am also assuming that many of the 20-something hedge fund managers are using these same models. There are a bunch of key decisions here for stocks, Treasuries and the Euro here, so I am looking for a potential reversal.

Investors Business Daily went to “Market in Correction” last night. The old ways of making money are having a rough go lately. I think the computers algos have been set up to cause overshoots in signals like IBD to get people making buy and sell decisions and then the markets are reversed – causing a massive squeeze as the newly entered orders are covered and reversed.

This is why I continue to get incredibly technical in my communications and decision making.

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