The Recovery That Algos Built

We all know about the strong earnings, stimulative tax cuts, low unemployment, etc. which have driven this recovery.  These are the headlines that scream for our attention every day.

Here’s a quick counterpoint: the algo-driven aspect of the recovery. For those not familiar with Fibonacci ratios, here’s a quick primer. Suffice it to say that SPX has paid a great deal of attention to key Fib levels over the years.

Since SPX first sliced through its 2.24 extension at 2703, there has been a battle brewing — with bulls desperate to hold the newly acquired support.

I present below just a few of the weapons used to motivate algorithms (and, the relative handful of carbon-based traders still standing) to ignore tariffs, geopolitical instability, rising inflation, tightening monetary policy, and stagnant real growth.

  • Jan 3: SPX popped above its 2.24 Fib extension, the result of oil breaking out of a rising channel it had been in since April 2016
  • Feb 9: the first 200-DMA tag since Nov 2016
  • Mar 23: the second 200-DMA tag
  • Apr 2: SPX closes below its 200-DMA, DJIA makes lower lows
  • Apr 4: Bullard – no reason to hike rates any further
  • Apr 4: Kudlow – Tariffs may not take effect; if do, would end in “pot of gold”

  • May 3: Another 200-DMA tag. VIX crushed 42% in 24 hours, continues to fall until SPX rises back above its 2.24 Fib at 2703.
  • Jun 25: VIX begins another 42% drop, continues until SPX above IH&S neckline
  • Aug 6: Bullard – recessions need not follow extended expansions
  • Aug 7: VIX reaches new lows
  • Behind the scenes, oil rallied 30% between Feb 9 (cycle lows) and Jul 3 (last backtest of 2703) dipping just enough each month (watch it today) to justify understated CPI

Something to think about as stocks approach new all-time highs…

continued for members


Sorry, this content is for members only.

Click here to get access.


Already a member? Login below

Remember me (for 2 weeks)

Forgot Password