Is there anyone on the face of the planet that is not following the gripping GameStop Saga? I see a Netflix TV mini-series coming although I am wondering how they will work in the obligatory sex scenes. Still, they managed that in the landmark 1987 Wall Street movie featuring Gordon Gekko (“Greed is Good”).
Do you not get that sinking feeling that the world as we knew it is turning upside down? Now we have the retail Robinhood punters fighting back (and winning), the EU wants to break the law over vaccine exports, US residents are getting paid more on furlough (and on Robinhood) than when actually working – the list is endless. Oh, and we have an ongoing pandemic that is destroying real businesses and jobs.
As I see it this weekend, the headlines over the huge losses sustained by many hedge funds that were short over 100% of the float (how is that possible?), is another canary in the S&P mine. Last week, I headlined my blog with a picture of a canary – here is another reason to have one.
With the institutions getting far too big for their boots – a symptom of their extreme manic bullishness, confidence and complacency and momentum chasing), they have been forced to unload some of their tech winners such as Apple. Last week it reported mammoth results yet the shares are down a chunky 10% off Monday’s $145 ATH. So do earnings drive the stock price? Answers on a postcard please.
And how come they took enormous risks on their shorts? Why, the availability of free QE money courtesy of the Fed of course. That money wasn’t going into peoples’ pockets and real businesses but directly to the maws of their Wall Street buddies. In a nutshell, the little guy has had enough of this rigged system – as they did after the 2008 Credit Crunch.
So is this little episode the straw that breaks the camel’s back for the decades-old bull market? From its 31,290 ATH on Thursday 21 January, the Dow has lost a rapid 1,300 pts. The Nasdaq is down 5.5% – in the face of generally blockbuster earnings for the tech sector.
There is a certain irony that the Masters of Wall Street are being brought to their knees by their shorts and not by their massive holdings of equities. What a crazy world we now live in (aka The New Normal).
This is what I wrote to my VIP Traders Club members yesterday morning:
A Lesson in Fibonacci Trading
As you know, we have been very successfully trading the US Grains since last summer. These are huge markets with wide participation (they are the earliest futures markets) – and therefore demonstrate excellent adherence to Tramline, Elliott Wave and Fibonacci principles.
Here is a great example of how I use the Fibonacci levels to pinpoint low risk trade entries in Wheat:
The main trend is up and so we should always look to go long. I like to buy on dips and because three wave down patterns are always corrective, the trend should resume up after the three is evident. I look for these three downs. And we can use the Fib level to give up even more confidence to enter with a close stop.
The last two long entries were made on accurate Fib corrections. Note that the most recent peak was put in after a lengthy bull run and that was a good reason to expect a larger three wave correction than normal – in fact, it corrected a full 50% of the rally – a typical expectation.
Of course, this pattern will eventually fail and you will be stopped out usually at break even to produce an overall winning campaign.