It Feels Like the First Time

Watching the market over the past few weeks reminds me of the Foreigner classic Feels Like the First Time:

It feels like the first time
Like it never did before
Feels like the first time
Like we’ve opened up the door
Feels like the first time
Like it never will again, never again

In this case, the torrid love affair is between algorithms and the things that make them feel all tingly “down there.” As in the song, it’s not the first time…not even close.

Algos love it when VIX breaks down. The logic is clear: fear must be subsiding for a reason, so buy-buy-buy! And, boy, has it subsided.

It’s not the actual levels to which VIX drops that excites the algos – it’s the trend changes and broken support. SPX made new highs in April because the purple trend line from Nov 2017 broke down. It made higher highs in July because VIX broke down again, pushing below the TL over and over again.

Only this time, it reinforced the establishment of a new trend line (shown in red.) Because that trend line is also now breaking down, algos are bidding stocks up to new higher highs. Imagine what would happen to stocks if VIX were hammered below 11.03, 10.17 or Nov 2017’s 8.56.

The algos could care less that the tail is wagging the dog. All they know is the tail is wagging.

Likewise, USDJPY keeps whispering sweet nothings to algos. In this case, it’s the 200-day moving average producing all the oohs and aahs. USDJPY first soared back above it on Oct 14 in the wake of the exciting (not) Phase One trade announcement.

It so titillated the algos that it keeps going back to the well over and over again — just like those trade updates from the White House. One wonders whether it might go blind.Oil futures, the algos’ Desdemona, have adopted a similar technique, popping up above their 200-DMA all but one session since Nov 4. If they looked closely, the algos might realize CL is resetting most nights and, like USDJPY, hasn’t made any actual progress. Ah, but what is love if not blind?continued for members…