Last week we saw to significant drops in the market driven by algorithms after we dropped below key technical levels. Algorithms using technical analysis drive most of the short term trading volume in the markets now, but they don’t do well at identifying when human sentiment will turn. Everyday market participants tell themselves stories to explain the past and their future expectations. This week we’ll look at how these stories create changes in sentiment to answer the question did we just scare up a rally and more important will it last.
There’s a saying that the market takes the stairs up and the elevator down. Last year felt like an escalator and this year we’ve taken the elevator down twice. This week we’ll look at the mechanics of downside momentum, the health of the long term trend, the bounce and where we might go from here.