Thursday, September 3, 2020

MOAC: Mother Of All Crashes

A super cycle options driven melt-up ahead of a long weekend. What could go wrong?

This could be a very expensive Labor Day indeed...

We are witnessing a confluence of the greatest market risks of our lifetime taking place at the end of COVID summer 2020.

First off, market liquidity has collapsed as is typical of this time of year. By Friday afternoon most professional traders will be gone for the last weekend of summer. Several brokerages were offline for part of Monday even though it was a generally uneventful day from an index perspective. Pundits are blaming it on the stock splits of the two mega bubbles - Apple and Tesla. As many of us have predicted, we now face a situation in which a handful of Tech stocks are now controlling the entire market due to ludicrous amounts of dollar volume. While the rest of the market has been stalled for months. 

"Online brokerage platforms at TD Ameritrade, Charles Schwab SCHW, E*TRADE, Vanguard and Robinhood were all down or sluggish for hours Aug. 31. The same thing happened during the stock market meltdown in February and March. This is now obviously a recurring problem that should have you concerned if you lack access to professional trading platforms that don’t have similar problems"

I can assure you that what is coming will crash even professional trading platforms. For my part, I am ensuring that my strategies do not have any options expiring next week. I am also taking pre-emptive positions so that I won't be required to trade through a meltdown. As always, cash is king.

As I write Thursday late morning, the so-called gamma hedging that created this past two week melt-up appears to be unwinding ahead of weekly options expiration. If so, then the hangover will build steadily between now and early next week. Meaning Tuesday due to the long weekend. 

Here we see the five day call/put ratio making a second lower high with Nasdaq new highs also putting in a second lower high (lower pane). Both deja vu of February:

As far as I know, only U.S. and Canadian markets are closed on Monday. Which will put Asia and Europe two trading sessions ahead by Tuesday in North America. Again, short term predictions are a fool's errand, nevertheless risks are too great to ignore this situation.

The risks have been building steadily into this momentous event.

Liquidity collapse
Over-leveraged positioning
Massive short covering
Options driven melt-up
Breadth collapse
Mass complacency
Economic obliteration

Also on Thursday morning it appears that the Tech bubble is rolling over hard. Tesla is down for the second day in a row. Large cap Tech is getting monkey hammered.

Buckle up