Programs touched off by program trading among ETFs

Past week recap: A very volatile down-up-down-up week resulting in a large net decline, which when coupled with the previous Friday decline amounted to the fastest 10% market correction in history. Seems institutional investors were holding stocks to get every last gain out of their long positions, perhaps beyond the point they should have been, so at the first signs of inflation there was an immediate rush for the exits, knowing that sell-off corrections are often very swift. Selling demand driven by this lack of resolve and desire to get out before great damage was inflicted, was exacerbated by a relatively new and growing phenomenon – sell programs touched off by program trading among ETFs and other robo-managed portfolios by major brokerages and fund families.

Some pundits are suggesting that the quicker the correction, the sooner a recovery will develop. Given the week ended with a significant Friday rally, unlike the week before, it is possible this market action is merely an overdue, traditional, even necessary correction, rather than the beginning of a sustained downtrend lasting many months. Next week should really provide a clue.

Whether the week was a gainful one for subscribers depends on how many short positions held. A portfolio skewed to shorts was a gainer, one with long/shorts at 1:1 was likely neutral at best, and one with long-only positions (which should not be the case given the many shorts among the list) was certainly a loser, much akin to the experience of long-only passive investors not paying attention.

Many new weekly lows, including most shorts from last week. Despite declines among long positions and some additional sell+sell short signals this weekend, quite a few long positions remain holds, with analytics proving very useful in distinguishing between holds and reversals.

Highlights: No new weekly highs in long positions. 4 stocks with double-digit long gains:

  • EVTC +12%
  • URBN +58%
  • BXC +64%
  • PES +12%

Locking in long gains of +17% in CECO (21 weeks) and +20% in NCI (21 weeks).

8 new weekly lows among short positions. 2 stocks with double-digit short gains:

  • BZH +16%
  • MRAM +14%

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