Stock Market To Get Hammered-Rare 10-1 Setup
The stock market is totally insane and the level of speculation is probably worse than any time in history. That includes 1929, 2000 and probably the Dutch Tulip Bulb Mania in the 1500’s. Look for the clueless FED to possibly increase margins for stocks(something that hasn’t been done in maybe 50 years, if not longer) from 50% to 75% to try and cool the insanity. This provides a rare 10-1 risk reward setup. I just bought 200 shares of UVXY for 10.55, I believe if I am correct and the FED raises margins for stocks, the market will drop 5-10% by the end of this week. That should move the Vix up sharply and UVXY to somewhere in the 20-22 area. 100% return. If I am wrong and the FED doesn’t raise margins, the market will probably drop anyway 2-3%, and you should still see a return of 20-50%. If I am completely wrong and the market does nothing or goes up, it doesn’t look like UVXY will fall more than a point before you can sell and take a ten percent loss. I always consider any trade likely to lose ten percent if I am wrong and have to bail. So I risk my usual ten percent possible loss for a high possibility of 50-100% in three days. A risk for sure, but one I am willing to take on a relatively small bet.
Why would the Fed raise the margin rates when they have promised to do WHATEVER it takes (think in the Trillions if necessary) to support it during this COVID phase?
Because speculation on garbage and options by kids who are clueless is out of control. Raising margin on stocks is targeted and doesn’t tank the economy like raising interest rates in general.
I’ll dissent again.
I have UVXY on an interm term trend sell signal today, pending EOD.
That said, the stars are lining up your way. Just not yet. Perhaps a month from now?
What I don’t see yet is the catalyst. But it certainly won’t be the Fed changing their tune for any kind of argument based on market (ir)rationality. As powerful as the Fed may appear, its not their gameboard and platitudes like that are nothing more than that. Public narratives are sheer propaganda.
Why would the FED be changing their tune. Not going to change interest rate policy. I am talking about quieting down the crazy speculation using margin and buying options. That has nothing to do with their interest rate policy nor open market operations which are supporting the economy and the financing of the govts. huge deficits. They don’t want to crash the market but they need to reign in the bubble before it explodes. That would affect the overall economy. A 5-10 percent correction would be beneficial to keeping the game going over a longer period of time. Not saying they would manage it successfully but I expect them to try.
CM or PD, please comment on attribution of the market run up due to 1) stock buybacks (based on borrowing at zero) vs 2) investor speculation. Of course 2 could be front-running 1 however unless the buybacks are effectively regulated, a margin requirement will only take some of the small player froth off. I don’t see the biden admin or yellen or powell suddenly going against corp buybacks – now THAT would kill the mkt. Thanks.
YYZ, interesting point but a seperate issue. Yes, buybacks have been one of many factors in market rise but only ancillary. Last year when FED stepped in after crash, buybacks were pretty much halted for months, yet the market still soared. Some like banks forced to halt to get help others halted on their own to conserve funds because their business was impacted by shutdown. My point isn’t that the stock market is at record levels and exceeding most historic metrics, which it is, my point is that the younger inexperienced market players are treating it like a video game and using margin and call options to speculate at levels never seen before. Raising stock margins would help curtail that and quiet things down. Corporate buybacks is a whole seperate issue pertaining to overall stock market. Not the under ten dollar stocks and companies that are bankrupt etc that are being short squeezed into gains of 100,200, 300% or more in a day.
Sir CM,
You have made some great points about the under $10 stocks (which are even more “exponentially” applicable to the under $5, under $2, under $1 stocks). These can make the “younger players” thousands of dollars a day, provided they don’t get too cute. Who knows how many are real winners in this game? I wish no ill to any one, in any age group!
Even though this post is regarding the “broader” stock market’s potential upcoming decline, I’d like to commend you on your very recent call again for the miners’ bottoming.
Here’s a couple of lines from Jeff Kern’s latest post on 321gold
“And to keep some uncertainty present, as markets/nature often do, USERX’s quick decline from its 1/21/21 16-20 index sell signal is about to provide another quick 16-20 index BUY signal. This is very SKI-likely to an important week and Monday (tomorrow; 1/25/21) is likely to be an important day.”
http://www.321gold.com/editorials/kern/current.html
USDX again has failed in sustaining any upward momentum, today.
All these markets are at some very interesting junction.
Thanks,
GL
Thanks, GL. I am not surprised that although today was a key day for the metals, it was a quiet one as far as volatility goes. We will probably see the volatility tomorrow, as we usually do on FED days. If one were looking to add to positions, today’s calm was an excellent place to do so. I like that silver is again showing relative strength.
And another input, little long read: the disconnect between the big 5, also known as FAAMNG, and many other acronyms, might even grow more, thus distorting the indices.
https://kingworldnews.com/big-picture-outlook-for-2021/
Albeit at insane valuations, these big names are now bellwethers. Once unheard of $1 trillion and higher valuations might still double? Who’d have thunk of that?
The other day my neighbor said, buy Paypal now … it is going to USD 500!
GL
Have to come back to this thread.
Should have said yesterday, pending EOW not EOD.
The weekly sell signal got swamped by the move today.
And I’m now on VLT buy signals for the VOL complex.
Kudos on the early call.
Thanks.