Trading stocks sees a stark division between computer-driven traders and human investors, with a rare degree of disagreement likely to resolve quickly, according to Deutsche Bank. Professional investors have cut equity exposure amid uncertainty, while algorithmic funds keep chasing momentum. A split between man and machine is expected to last weeks, not months.

The S&P 500 is caught between technical and fundamental forces, with low volatility and high uncertainty. A mean-reversion selloff is possible due to systematic crowding, like now. The split between man and machine may last weeks, with potential for a selloff if discretionary traders start selling.

Computer-driven strategies could unwind positions if volatility rises, with full exposure to US equities by September raising vulnerability to market shocks. Selling may start with CTAs unwinding extreme positioning, increasing the risk of sharp reversals in the stock market. A substantial selloff is needed for volatility to last.

CTAs are long $50 billion of US stocks, near max long, but a breach in the S&P 500 would prompt dumping. Quant positioning is stretched to the bullish side, with pressure from extreme uncertainty. Any systematic selling pullback could create an opportunity for discretionary asset managers to re-enter the market and prevent a severe plunge.

The next drawdown is a mystery, but asset-manager exposure and discretionary positioning are light, adding fuel to a ‘buy the dip’ mentality. Whatever triggers the next drawdown will likely prevent an even bigger selloff.

Read more at Yahoo Finance: Divergence Emerges Between Human Traders and Computer-Driven Investors