Algos Looking for Blood

2018 has been an all or nothing year.  Either up continuously or down continuously.  Unlike past corrections in prior years, the market has tended to do nothing for months, trade with low volatility, and then suddenly, one day, the volatility explodes.  There were no 1% moves for over 3 months and then suddenly you have an over 3% whopper and now another 1% lower in premarket just to kick the BTFDer while he's down.  

The CTAs and the hedge funds are all in the same trades, enter gradually into their positions, but puke them out all at once.  It happened in February, and it is happening again.  Both times due to higher interest rates.  

The HFT algos are like sharks sensing blood in the water.  They are predatory and very profitable.  Especially on big down days.  The institutions who are panicking and dumping stock are being ruthlessly front run and are either forced to puke out at rock bottom prices or can't get out.  It is a roach motel market now.  

I am out of the short, and will wait for lower prices before putting on longs.  Clearly the velocity of the selling into yesterday's close made 2800 look like it was nothing.  Now it is on to 2700, and then 2675, the closing level of 2017.  Beware of trying to buy the dip on Thursday.  The market has changed character and traders like to liquidate and panic on Thursday afternoons and Friday mornings, getting ahead of the "afraid of being long over the weekend" crowd.  It doesn't wait for Friday afternoon anymore to panic sell weakness.  

It is going to be wild trading over the next few days.  With bonds not providing a good diversifying hedge for equities, it puts more pressure on portfolio managers, many of them running 60/40 stock/bond allocations, who don't know how to deal with big down days as bonds aren't providing a safety valve for their stock holds.  Risk parity pressures are going to be a weight on this market so don't expect a run right back towards 2900 like nothing happened.  The damage is real this time.  While we will likely get a year end rally, there is no need to rush into any longs at this point.  Let the algos do their job.  

If SPX opens at current overnight levels, around 2750, you should get a reflexive buy program in the first hour, taking it up to yesterday's close at 2785, and consolidate that move for a couple of hours and then selloff again in the afternoon, as longs get scared of holding overnight and also over the weekend and beating the Friday panic selling crowd.  A weak close today and a gap down on Friday will likely set a temporary bottom on Friday.