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‘The Program’ – Kill The Algos… Before They Kill Us

Courtesy of ZeroHedge View original post here.

Authored by Sven Henrich via NorthmanTrader.com,

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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