Piggybacking Your Way to Profits

Staring at the ticker tape all day can be downright painful in a good summer market. Add in a major world crisis, and this time of year feels like a root canal with no meds. Cramer said it best when he called recent price action "repulsive," noting the public has completely vanished from equities. I don't expect they'll be returning any time soon.

We can also blame computer algorithms and thousands of lemming-like hedge funds for a good deal of the market's current misery. In combination, they've taken greed and fear out of the buy-sell equation, replacing it with size and speed that pushes the intraday bid-ask in whatever direction they want it to go.

Expect more of the same in coming years because profit incentives in this new era of market manipulation are just too great to ignore. But the environment would greatly improve if the SEC took their heads out of the sand and finally established fair-play rules that eliminated phantom pricing and forced the display of real size.

This brave, new computerized market is a double-edged sword for public traders. On the one hand, it forces them to ignore support and resistance, focusing instead on the quality of relentlessness pricing in the intraday market. On the other hand, piggybacking computer algorithms can be a great way to make money.

S&P 500 E-Mini Futures

Click here for larger image.

Source: eSignal

What do I mean by relentless pricing? This term refers to the signature of computer programs on trend days, when markets fail to turn at natural pivot points that would have triggered reversal activity in prior years. Price channels are the telltale signatures of these lopsided events, usually showing up on the index futures.

Characteristically, the only countertrend movement in these types of sessions happens around the lunch hour and in the final 30 minutes, when a sometimes-violent counterswing shakes out positions ahead of the close. In between, every wiggle against the trend runs into a synthetic wall of pressure that forces pricing in the other direction.

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At the time of publication, Farley had no positions in the stocks mentioned, although holdings can change at any time.

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