After four straight days of intraday reversals and weak closes the market shifted direction and crushed the traders looking for that pattern to continue. It was classic computer algorithm action, which took advantage of bears that were counting on interest-rate worries to continue to provide pressure.
The upside action was further enhanced by a surge in the short-volatility trade that caused so much pressure to the downside when it was unwound. It turned out to be the inverse of the action that caused the big dip at the start of the year.
In essence what we had was a computer-generated bear trap that gained additional traction as those that were caught leaning the wrong way rushed to reposition.
As has been the case in this market lately, the obvious worries about interest rates failed to gain any traction. That is due in large part to the Fed members who continue to murmur dovish blandishments to anxious bulls who don't want endless accommodation to come to an end.
Next week we have congressional testimony from the new Fed Chair, Jerome Powell, which is sure to ignite the interest-rate debate once again. The problem for the bears is that the machines have shown that they have the power to overcome even major economic issues like this.
This market will not go down unless the computer algorithms are in agreement.
Technically, the S&P 500 is back to the top of the recent trading, although it fell short of the highs hits a week ago. Quite a few things are technically extended, which really doesn't matter, but the rampage we had into the close today is going to excite some bulls just like it excited some of the folks in the media.
We have to give the bulls the benefit of the doubt now, but the market is working overtime to surprise us.