Man vs Machine

And I thought trading was addictive. Can't stop blogging :)

The machines may have taken over the market. But we, men, think better than machines. While the machines will be buying ahead of every bid and drive SPX up into a major resistance zone at 50 - 61.8% retracement, we, men, have some time to think what to do once it gets there. Wise thing to do at that time could be to sell. Why? Here is my take:

All major world markets are pointing to a recession. After 11 sessions of distribution-type (with multiple 90% down breadth days) sell-off, the following markets are in a bear territory:

Brazil -30%
Honk Kong -23%
Germany -22%
China -20%
Korea -20%
Australia -20%
France -20%

These are the backbone of the world, the once touted source of growth for S&P 500 companies, the reason we were going up while our economy was in a slow growth. Now we are catching up with reality folks. World-wide recession is here. These US indices are in a bear territory, even after today's astonishing rally:

Russell 2000 -20%
Dow Jones Transports -20%
PHLX Semiconductor Index -27%

Still not convinced? World-wide recession is now well-confirmed by commodities: CRB Index is down 15% from the high made just on May 2. Care to look inside? Most important components and major indicators of growth - Oil is down 30% (after today's rally), and gasoline is down 20%. Oh but people have to eat, right? Wheat and sugar are down 24%.

FED all but confirmed it. Poor, scared central bankers have lost their marbles today and said that FED funds will be at 0% for 2 years. This is the same FED, who's Chairman told us at his last press conference that "extended period" means the next few meetings. Can a blind squirrel see better than him? No wonder 3 FED voting members dissented, probably thinking that the man has lost his mind. When the heck was the last time FED ever told us the exact policy duration? So why do we need FED for the next 2 years? Gold (better than VIX fear indicator) goes to $2000 now. Thanks a lot!

So, is the yield what today's rally was all about? If you are a fund manager, where do you put the money when 10 yr note is yielding 2.2%? Those guys realized in the last hour of trading that the lower they pay for S&P 500 the better yield they get. Here is your reason for rally. It was definitely not because FED predicted no growth for the next two years.
I am not trying to throw a wet blanket on "historic" rally. But we are up one stinking day after a "historic" decline. Dead cats bounce too, after a 20-story fall (sorry cat lovers). I care not to look at percentage gain, but rather a whole picture. Had it not been for FED meeting and their pledge to keep the rate at 0% for the rest of our lives, where would we be at the end of today?
Who said it is safe to go back in? Same fund managers who were screaming "do not panic" during 2008, as they were selling like nuts to all of investors, who's money they were managing in the first place. If we sell, they are out of work.

You will have to draw your own conclusions from the data above. I am not saying to sell blindly. But as we near the 50% retracement, this market will once again become vulnerable to the same shenanigans of HFT. You will have to chase the downside once again, with no credible retracement to short. We can not overpower these machines, but we can be in front of them, for a change. Men, be wise this time...