Many people have seen this pattern or image on Twitter and social media, compared with past crashes of SPX in 1970 and 2008. The post goes around for a couple of weeks now, only that last week something happened which is different to before: the marked closed in a bullish candle.
Apparently everyone and their mom is betting on a crash with a short, which naturally would result in long positions opposed to their own. In 1970 and 2008 the SPX fell down from the short trend, peaking to the ground and testing the bottom, before returning to the trend line and then crashing bigly. This white V movement you see on the chart indicate late-on short orders to the SPX, bringing the index back to the trend line before crashing by a major event. Being aware of the pattern today, with social media in every investor's hand now, many people short the SPX before the event, which resulted in a bullish drawback to the trend line last week.
But wouldn't that mean that the crash is coming, even though everyone is predicting it to happen by their money vote? No. The market is a weighted vote on direction, influenced by large fishes placing orders, not the small ones doing a trade with a percent of their 100k account. And if large institutions do not opine to sell on the SPX, the shorts of the thousands of many retail traders won't ever come to cash. No matter which kind of outside events occur: the sentiment and decision of large participants make the market. They might as well stabilize the price with Buy Stops on small participants' panic sales, practically the reverse of what's happening when everyone shortens an instrument and not see the price coming down.
As we all know, there is a liquidity drain on the financial market happening now - I posted about it earlier today. Banks fail on the rate hikes because people shift their bonds to better-values ones, making the bonds banks are holding in their books worthless. That doesn't mean it happens to every bank and dominoes to a marketwide, credit-failing financial crisis. The fall will only come to banks which are way too exposed to unrealized losses in bonds and other assets and major in account deposits at a size only few people own.
More likely than a financial crisis will be a stop or even recession in building projects: rate hikes made loans very expensive to uphold, which means many houses come back to the market. For the same reason, and because of the uncertainty Credit Suisse is hanging in, current building projects are on hold because their liquidity provided by financing projects from large banks behind them is under stress. The end of the low-rate era withdraws liquidity, not only from the stock market but also from real estate to the now more appealing fixed-interest securities.
It is a difficult market, yes, but one which will adapt to the new situation, given the Fed will be able to push back on political pressure and continues their rate hike with more moderation than recently.
Apparently everyone and their mom is betting on a crash with a short, which naturally would result in long positions opposed to their own. In 1970 and 2008 the SPX fell down from the short trend, peaking to the ground and testing the bottom, before returning to the trend line and then crashing bigly. This white V movement you see on the chart indicate late-on short orders to the SPX, bringing the index back to the trend line before crashing by a major event. Being aware of the pattern today, with social media in every investor's hand now, many people short the SPX before the event, which resulted in a bullish drawback to the trend line last week.
But wouldn't that mean that the crash is coming, even though everyone is predicting it to happen by their money vote? No. The market is a weighted vote on direction, influenced by large fishes placing orders, not the small ones doing a trade with a percent of their 100k account. And if large institutions do not opine to sell on the SPX, the shorts of the thousands of many retail traders won't ever come to cash. No matter which kind of outside events occur: the sentiment and decision of large participants make the market. They might as well stabilize the price with Buy Stops on small participants' panic sales, practically the reverse of what's happening when everyone shortens an instrument and not see the price coming down.
As we all know, there is a liquidity drain on the financial market happening now - I posted about it earlier today. Banks fail on the rate hikes because people shift their bonds to better-values ones, making the bonds banks are holding in their books worthless. That doesn't mean it happens to every bank and dominoes to a marketwide, credit-failing financial crisis. The fall will only come to banks which are way too exposed to unrealized losses in bonds and other assets and major in account deposits at a size only few people own.
More likely than a financial crisis will be a stop or even recession in building projects: rate hikes made loans very expensive to uphold, which means many houses come back to the market. For the same reason, and because of the uncertainty Credit Suisse is hanging in, current building projects are on hold because their liquidity provided by financing projects from large banks behind them is under stress. The end of the low-rate era withdraws liquidity, not only from the stock market but also from real estate to the now more appealing fixed-interest securities.
It is a difficult market, yes, but one which will adapt to the new situation, given the Fed will be able to push back on political pressure and continues their rate hike with more moderation than recently.
Trade closed manually:
The situation changed, so I take the little profit which would have continued otherwise due to chart formation. Overbearing events which actually lacked for the final straw of the counterdicted short scenario might now appear.
