Above But Not Below

The cash S&P500 Index and the SPY ETF have filled all but one gap to the upside, and it is certainly possible that the gap gets filled. The chart below shows the gap on the S&P500 Index at the upper left.

 

S&P500 Cash Index - Daily - Gaps

A reasonable person might ask, "Why is it so important to fill that gap?". I mean look below, and see all of the unfilled gaps at the arrows. Why aren't a lot of those getting filled along the way? Yes, a very few of them have. Faced with the evidence, a reasonable person might conclude that filling that gap and making it over the high would mean that the market place and, hence, the entire world had confidence in the policies of Federal Reserve and the 'Smart Money' firms that do the FED's banking. Some of those firms are, of course, market-makers. They operate the exchanges and the market-making trading algorithms that cross & match the orders and clear the futures.

So, now let's suppose something for a minute. Let's suppose you have a goal-oriented A-I program. Goal-oriented just means you tell it the function you want to accomplish and the program or neural network takes in information (specifically information on your brokerage balance, on your number of positions, the time of day you typically trade - from the order time stamps - and the type of order you typically enter, such as market, limit, options straddle, etc.) and the A-I program works out the solution to attain the goal. Goal attainment is paramount.

This program can literally blow-up Peter's position to have enough money to pay Paul's position along with Anne's position since they are smaller, or vice-versa, etc, etc. The program can also work to solve the problem of who is in the market at particular times - such as U.S. institutions during the day, versus European institutions - to determine based on readily available information such as volume flows what trading pattern to use to insure that the day looks like it is starting off lower and ending higher.

Such a program would need a fair amount of computing power. The question is whether in the short run a human could compete against it? And that's it - just a supposition and a resulting question. What's odd is that - if you know much about statistics - is that, since the March 23rd low, never once was the pattern allowed to make more than a 50% retracement, and that was the second wave off the bottom. It was very close to 50%. None others. So, it is hard to say there is any component of randomness here, or any semblance of "return to the mean".

We all know the FED is making massive funds available. Some will say, well it's a pattern of group think: a self-fulfilling prophecy. We all expect the market to go up when the FED is behind it, so it will. My question recognizes that but also is not so benign. Are we being purposefully A-I'd in the market in a "devil-may-care" about the actual market function so that a particular goal - a goal of a powerful organization or group of organizations can be attained? In other words, when an organization says, "we still have tools in the toolkit", even though they are technically broke, are they using one tool - massive computational power - to the short-term advantage of the organizations in power over the remaining market participants? Is that why there is always a crash, because the short run is not sustainable?

The Elliott Wave count on the daily chart remains unchanged. Because the DOW made a new high today I have added the option that we are in wave 3 of the potential diagonal.

ES Futures - Daily - Potential Diagonal

Have a good start to your evening.

TraderJoe