Friday, January 15, 2021

The Fool Or The One That Follows?

Extreme positioning going into a long weekend with the rest of the world going RISK OFF. What could go wrong?

This article sums up the risks at this juncture:

"Call-buying has pushed ‘gamma’ exposure to all-time highs"

"The feverish call-buying is fueling a bullish feedback loop in equities as market makers hedge their positions

“The unwind could potentially be violent given all the excess euphoria. It is more likely a question of when and not if.”

At the top in February last year, option speculation was likewise manic and ignored:

Feb. 26th, 2020: 

Reddit Traders Are Using Options To Manipulate Stocks

"What this moment shares with 1999 is a rising belief that someone else will come along to buy a surging stock at an even higher price, regardless of fundamentals."

"A favorite tactic on reddit/WallStreetBets is to swamp the market with call purchases early in the morning in an attempt to force dealers to keep buying stock"

When this article was published, the market was already exploding post opex - gapped below the 50 day:

Like a toddler on a sugar high, today's gamblers are massively over-stimulated on monetary heroin and fiscal stimulus.

And options speculation in this period far exceeds what took place last year:

This week saw a similar pattern in the Rydex ratio relative to what happened in 2020. A peak in December, then a pullback, then another surge in the New Year. This time coming a month sooner than last year. 

Volume has gone parabolic. And speculation in penny stocks is showing up in the record Nasdaq breadth thrust (lower pane). 

From the first article above:

"Perhaps the most dramatic illustration of the day-trader craze came on Monday, when six stocks priced under $1 per share made up nearly a fifth of total U.S. volume"

Markets were unimpressed with Biden's stimulus package. 
One thing both parties have in common is that they have not the slightest idea how to create full time permanent jobs. Forty five years of jobs decimation has made that abundantly clear. 

This latest stipend for the mass unemployed is "priced in":

"Reagan proved deficits don't matter"
- Dick Cheney