Weekly Report 20-23.2.2018.

The algorithms have changed everything we thought we knew about trading and even without mining historical records, we can say with some measure of confidence that we’ve never seen a winning streak the likes of which we’ve seen over the last 6 days. In the future, after some time elapses, investors will look back and be able to gauge more fully the extent to which the latest movement we got veered in every respect from the norm or what we’ve come to seen as run of the mill. With that said, as long as we’re still in the throes of the movement, it’s hard to comprehend its sheer exceptionality.

The American stock market capped off its best performing week in 5 years, succeeding in offsetting half of the large price correction in whose context the market fell 12% from the historic high recorded on January 26th in the wake of downward pressure from a rise in inflation and concerns about a higher clip of Fed rate hikes. After the market’s week-long rally, the market traded just 4.9% beneath its all-time high.

Weekly Summary: The Dow Jones soared 4.1%, the S&P 500 jumping 4.44%, the NASDAQ ending up by an impressive 5.68%.

The market rebounded strongly all week long. One of the things that stood out was the manner in which the market rose. The market rose almost linearly all week long, the S&P 500 making short shrift of one resistance level after the next. The S&P 500 slashed through the 50-period EMA like a hot knife through butter.

A traditional technical analysis would remind us that we should expect to see a certain level of hesitation, and perhaps even a retreat after a jump as big as the likes of last week’s. In the past, prior to the Great Recession of 2008-2009, traders would have called it a “retest,” in other words, the market testing the significant technical levels that were created. That though, seems like an idea that’s been slowly fading nowadays. Market players are getting more and more used to fast “V” movements.

There’s no justification for price movements like this, but you’d have to fight against the movement like a salmon upstream. Many traders had hoped that the rise in volatility along failed short positions would help us revert back to normalization in the market. It seems that the market is prey to manipulation more than ever before, crushing anything that dares venture into its path.

Another important facet of last week’s trading is the manner in which the market completely ignored inflationary concerns. Despite the hot numbers on the Consumer Price Index and other data points highlighting inflation, it seems that the market has put this worry behind it. At the same time, it’s hard to imagine that this topic won’t resurface; with that said, timing it right will be very difficult.

All-in-all, the market went in rough and tumble fashion from oversold to overbought levels. There’s always a caveat, though! Over the last few years, the market did just fine being in an overbought state, becoming more and more overbought, defying the odds – and flouting what any rational trader would have thought logical, or plain out normal.

The coming trading week will be only 4 days in length because of Presidents’ Day which will be commemorate on Monday, with markets closed for trading. This week’s Economic Diary will be meager, most of the focus being on the Fed minutes from its latest meeting, which will be released on Wednesday, the central bank’s monetary policy tack then coming into focus again with Friday’s release.

Have a great trading day!