Welcome to the Machine

 | Feb 05, 2013 | 1:45 PM EST  | Comments
  • Comment
  • Print Print
  • Print

Doug Kass' line about the market not having a memory from day to day definitely applies today. It went from a gloomy, trend-down day to an upbeat, trend-up day on no significant news. If anything, the news was negative due to poor earnings reports from YUM! (YUM) and Baidu (BIDU).

This sort of inconsistent action is another good example of how computerized trading has come to dominate. Humans may have mood swings, but the pattern of shifting every other day smacks of computer algorithms trying to catch market players out of position.  Yesterday and last Thursday, the computers kept the pressure on, which scared out some bulls who had grown overconfident in their dip-buying. Today and last Friday, the computers squeezed the bears who have been anxiously anticipating a market rollover for weeks.

The fact that the action has a tendency to trend the entire day is another tipoff that computers are in control. When you have out of position traders on the ropes, the computers tend to push their advantage, which is why we see these V-ish moves so often.

The best way to deal with this sort of action is to simply be aware of what is driving it and don't try to impose convention logic. One of the main reasons I continue to stress staying with the trend is because it is so obviously computer-driven and likely to go to extreme levels.

One of these days, the trend will turn and the computers will work in reverse, but right now they caught a lot of bears by surprise and are working very hard to pick their pockets once again. We are hitting day highs as I write and usually if we stay this strong this late in the day, we end up with a good close.  

Don't fight the machines.

Columnist Conversations

Last Thursday I gave a webinar talking about a rare price condition called the 'fat tail', and how option trad...
The last setup in COST is considered a bust...If you saw any triggers you would have been stopped out and at t...
The 300+ drop in the DJIA, 28+ point decline in the S&P 500 and the almost 86 point plunge in the Nasdaq r...
The bearish divergence in the stock price of Berkshire Hathaway (BRK/B) and the S&P 500 index may have bee...



Columnist Tweets


Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.