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Automated Trading Programs

S&P Today

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 Just a short update today – I wanted to show you what the market action looked like.  All day long, the market trended upward until 2pm when the computers kicked in and drove it down to support (see the graph below for the blue horizontal line I drew in).  Then when it hit support, the computers started buying driving the price back up to when it started at 2pm.

s&p 500 2015-08-257

You can see where the support line is and its easy to picture how the automated trading programs were set to be buyers when the market fell to that support level at the daily highs of the past three days.

For our final visual, I thought we’d revisit the graph with the Fibonacci resistance levels which give an even clearer picture of the computerized trading.

S&P fib levels

You can see pretty clearly that in today’s action, we broke through the initial level of resistance discussed yesterday and made it up to the second resistance level where at 2pm, where the automated trading programs were set to sell so they could book the short term gains made today.  The selling commenced, driving back through the initial level of resistance that was broken through this morning, down to the support level at the highs of the previous three trading days.

I’m not quite sure what the SEC or the NYSE is going to do about these automated trading programs, but its pretty clear that something needs to happen.  The markets are supposed to be a place where price discovery is conducted between independent buyers and sellers – the current market seems to have changed the dynamic for individual investors.  Likely not for the better.

 Mark