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The Markets Speak: The Great Flood Of Liquidity

Jun. 05, 2020 8:13 AM ETAAPL, AMLP, GCC, NFLX, RSX, SPY, TLT, TSLA, VXX25 Comments
Harry Long profile picture
Harry Long


  • Those who get their "knowledge" from rumor and opinion, rather than from data, have paid a very high price.
  • Financial markets have undergone a tremendous shift in the past two decades.
  • Large herds of investors quickly herd in and out of popular indices at the click of a button.
  • These movements create large statistical footprints and exhibit classic herding behavior. However, separating signal from noise is difficult without cutting edge technology.
  • Valuable fundamental information is imperfectly distributed. Therefore, prices move before all competitors in the market have the complete fundamental picture, or before they have processed it accurately.
  • Looking for a helping hand in the market? Members of ZOMMA Algorithms get exclusive ideas and guidance to navigate any climate. Get started today »

My service signaled a move to cash for our subscribers on Feb. 21 at 9:55am, within 1.6% of the all time high for the S&P 500. It was satisfying to signal an exit an the all time top. But the subsequent flood of Fed liquidity can created whiplash inducing market moves that terrify most investors.

Here is a useful empirical framework that guides a rational algorithmic approach:

First, fundamental data is widely reported. However, market prices react to both fundamental data, and increasingly, to central bank liquidity injections.

Second, heavy-handed central bank moves to inject and to withdraw liquidity often override economic fundamentals in the short to medium term.

Third, markets react to economic fundamentals, to corporate fundamentals, and to central bank gambits to inject and to withdraw liquidity.

Remember that, although market participants focus on explicit Federal Reserve policy decisions, day-to-day open market operations, in which the Federal Reserve buys and sells bonds on the open market, are just as important.

Fourth, Federal Reserve open market operations create trends, or serial autocorrelation, in the direction of asset classes.

Over time, the interplay of these variables creates the winners and the losers of the game.

Algorithmic methods can often sniff out important statistical footprints. I use my Zomma Directional Algorithm to take advantage of trends created by the flow of investment dollars reacting to the interplay of these variables.

The algo does not use form fitting. It uses the same settings on every market. Here's how to understand the results:

1. When the yellow line crosses above the green cloud, it signals a buy.

2. When the yellow line crosses back into the top of the green cloud, it signals a sell and a move to cash.

Note: The algo is not designed to create short signals.

When my VXX (

On February 21, 2020 at 9:55am, our service signaled a move to cash for our subscribers. This was within 1.6% of the all time high for the S&P 500.

Investors want upside exposure to index funds and ETFs, but don't want to suffer through crushing bear markets. We have a solution. Our algorithms signal when to buy and when to sell. Click here to sign up.

Our subscribers agree:

"ZOMMA Algorithms kept me from losing money! A great system." --HappyGirl2

"Harry's last name is not Potter, but his trading algorithm results make you think he is definitively a wizard or magician !!!" --Utente1

This article was written by

Harry Long profile picture
Harry Long is the inventor of Hedged Contango Capture and Hedged Convexity Capture and is the Managing Partner of Zomma, an innovative algorithm creator.Mr. Long is a globally recognized expert on the research and development of algorithmic investment strategies. The Zomma IP portfolio of algorithms is sought after by asset management firms, investment banks, hedge funds, principal trading organizations, index providers, ETP sponsors, energy companies, and private equity firms to help them develop and deploy competition crushing algorithmic investment strategies.Mr. Long's algorithms have been used by institutions such as: CargiilMacquarieCastletonFreepoint Commodities.Zomma helps institutions create long term value by replacing emotional decision making with cutting edge technology based upon objective evidence.Mr. Long is a graduate of Rice University with a B.A. in Economics.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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