A hidden force is moving the market

The market has set a new record: 10 weeks straight-line up with Jan and Feb both in green. It is really an unbelievable bullish run, making a lot people believe that we are already out of the woods with a V shape recovery from the dismal Dec harsh selloff! As you all know, I'm not so bullish at least for now and expecting some sort of severe correction any moment by now. The past few days of weakness at closing may set up a stage for another leg down in the days ahead. Today I'm going to tell you another market force that is playing an increasingly important role in the market that may intensify the move for either direction. I'm pretty sure it is new to most of you. So keep reading 😅😎


Have you heard CTAs? It stems for Commodity Trading Advisors, which are a class of asset managers whose investing models are based on momentum algorithms. Their investment style is driven by "trigger" levels in the stock markets. So, when the market is rallying, it sends their models signals to buy stocks, and, when the market is falling, it sends the same models signals to sell stocks. In other words, they are purely TA driven largely based on the resistance or support lines such as major trend lines or moving averages. According to Wall Street Journal, CTAs have controlled assets worth $360 billion now, a humongous money animal that can easily move the market. The problem with CTAs is that it is mechanically operated based on algorithms without manual intervention, or said in another way, a blindly trend follower. When a signal triggered, it pours in billions of dollars to buy or pulls out billions by selling without thinking and that's often resulting in overkill for the underlying direction. That's likely one of the major reasons why the Dec selloff was so devastating and seemingly unstoppable. That's also likely why the past 10 weeks of bull run has been so strong and seemingly unstoppable as well.  My source tells me that a downtrend signal may have been triggered now for CTAs. If so, be prepared for more selloff!
If indeed we are going to see some sizable selloff, what are the most likely trend lines that CTAs may be looking at? For S&P, the obvious major resistance is around 2815ish. Since last Oct, four attempts of challenge have been made but failed to breakthrough it. After few days of bearish price action, the near term trend is turning to bearish. Today's closing was right around the 200 DMA which could be a support. So some buying early next week is likely but I don't think it will last. More likely it will turn down again quickly and moving towards its next support around the 50 DMA (2670ish and changing) but again may likely fail. The most possible strong support for this phase of correction is the trend line around 2600. If this support can hold, the chart will create a bullish inverse H&S pattern, which may pave the way for the next leg up for new all time highs later of the year. But if that line cannot hold, then watch for a low test all the way down towards 2350ish, an ugly prospect! It is too early to tell which is more likely as it all depends on the TA and the sentiment at that time. For now, be very cautious and don't be fooled by any near term rally. Its TA is really not looking pretty right now. Any rally will likely just be a bull trap for those who are doomed to buy highs and sell lows. Don't be one of them!