Let's have a quick look at how the market reacted to the political armageddon news that was discounted after one hour. The best is to see how the Money Flow/Price moved compared with Wednesday's selling.
We can see below that on both days, the 20DMF displayed selling of about the same strength. This shows broad-based selling by large players that accompanied the price weakness. This is a normal behavior.
The small caps experienced a stronger selling pattern on Friday than on Wednesday. But the price pullback of Wednesday was almost nil. This is also a normal pattern.
What is not usual is the NQ8/NQ100 selling difference between Wednesday and Friday. We can see below that although the price drop of Friday was rather strong, sellers were absent. I believe that this is linked to how algos have been programmed. Algos already exited short-term positions on Wednesday and rotated into the more general S&P500 in order to trade the tax deal without the risk linked to high valuations of the tech stocks. So basically few candidates were left to sell the tech stocks.
However, for the algos that opened new long positions on the S&P500, as soon as negative liquidity was detected they had to sell their newly entered positions in order to limit losses.
Index investors started to sell the SPY ETF, even though they bought back later in the day. QQQ investors are more negative.
Conclusions:
I believe that coming into the tax deal news, many algos were stopped out of their long S&P500 positions.
The positive news should push up all markets on an opening gap up on Monday, with probably algos chasing liquidity higher.
I suspect that clever investors will try to fool algos into buying the open and again trigger stops in the afternoon. That would work only if central banks (the BOJ) do not buy everything just to show political support to the Trump Administration...
On a side story, I added a filter that intends to detect longer term LEV/Price divergences.
