Stocks have soared and this simple fact can drive them higher.

US stocks have had an incredible rally off the March lows, rising roughly 40% to near all time highs.

Much of today's market is driven by machines. Hedge-fund and other market quants use algorithm programs to buy and sell. The machines create extra volatility on the upside as well as on the downside as billions of dollars chase assets in the same direction. The good news is for long investors the trend is currently in our favor.

Commodity trading advisors (CTAs) has grown to $250 billion in assets under management and through 10 times leverage these trades can reach up to $2.5 trillion.

Quant and algorithmic hedge-fund models operate based on the market acheiving key trigger levels either bullish or bearish.

The current technical of the S&P500 Index is setting up for additional leveraged trades to be placed long the overall stock market.

The first major trigger was as the SP500 crossed above the major moving averages as shown on the chart above. This told quant programs to begin to move investors from short to long. The next trigger will be a moving average cross over (i.e. as the 50 day moving average rises about the 200 day moving average) these programmatic traders will add more long exposure to their funds. These funds do not care about PE ratio or PS ratio they simple continue to buy when the models tell them to.

These models work best when markets gradually move up and down but as we saw with the recent bear market decline they can quickly pill on to an already weak market driving it to unbelievable levels.

This industry is a huge part of today's daily stock price movement and it will only create additional volatile as more money chases the same assets. For now we have a virtuous cycle that will continue until the momentum breaks in the other direction. Being long the markets whether through put selling or long common stock is a good bet today.

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Disclosure: I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. The information provided should NOT be considered advice. The topics discussed are risky and have the potential to lose a substantial amount. I am not an investment professional and therefore do not offer individual financial advice. Please do your own research before investing.

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