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Monday, June 5, 2023

Is Something About To Break?

Is Something About To Break? 

We'll get to the topic at hand in a moment, but first - wrapping up last week: 

Friday - It was good to see the Dow rally for a change, especially after calling that trade, first thing out of the gate. The Dow actually out-performed the Nasdaq.   

 Saw this trade coming a mile away: 

Small-caps also joined the party, and a little engineered short squeeze in financials, helped lift the market to new recent highs.

$KRX - Ended up 6.25% on Friday after buying programs were triggered. 

Whoever engineered that short squeeze did pretty well for themselves, and if they were leveraged they did even better.... More on leveraged positions in a minute.  

To Recap 

Dow ended up 2% on Friday, while the Nasdaq only ended up around 1%. 

Both ended up around 2% for the week. 

Of course, the Nasdaq has been leading a stealth rally over the past several weeks.  

$COMPQ - Is up about 30% since Oct. 2022. 20% since March 2023. 

That's enough to trigger headlines about a "new bull market", which always seems to be the goal.  

The same can be said about a bear market, being telegraphed during a decline, like the pullback we just saw in China. No sooner than a bear market is announced, the $HSI gaps up and finishes the week up 4%. You know what I call that? 

It seems that appearances and headlines are far more important than fundamentals, and I suppose that's why we have so many financial networks continuously reporting the same nonsense. It's all for show. 

Is Something About To Break?

The title of this blog comes from something Guy Adami tweeted on Friday grabbed my attention 


The screenshot - attached to the tweet - above is of the options action, with a red arrow pointing to the ever increasing volume. 

I also happened to catch Guy Adami on Fast Money, after Friday's close, sounding the warning, and advising folks to put some protection on. 

The host of the show mentioned the Daily Options market, constitutes nearly half the daily volume on the SPX? That's pretty astounding, and it points to a dangerously over-leveraged situation.  

Others have been warning of the same thing: 

1.Volmageddon 2.0 is still on the table, as we continue to see the $VIX being heavily shorted... as we did again on Friday. As I explained to one trader, this is being done in order to make sure the weekly options pay.  

What Is Volmageddon? Why Record Options Trading Could Risk Another 20% Stock Crash

2. Explainer: the Rise of 0DTE Stock Options and How They Could Be a Risk to Markets 

3. The Big Short" investor compared the options-trading boom to debt-fueled speculation in the 1920s. 

The Scion chief also drew a parallel between the surge in people trading options on meme stocks such as AMC Entertainment, and the mass speculation that preceded the Wall Street Crash of 1929. He juxtaposed an article about the options mania with a quote by a statistician named Leroy Peavey in November 1929. Peavey blamed the market crash that year on a wave of leveraged speculation that pulled in "elevator boys, typewriter girls, and even schoolchildren."

Of course the mass speculation has been contained to a small segment of the market, mainly Tech, and  a smaller sub sector labeled"AI", although when there's a run for the exits, the baby tends to be thrown out with the bathwater. 

It will be interesting to see if money managers put money to work on this first Monday in June, or will we see a buyer's strike..? 

To be honest I don't see a crash coming, and I don't see anything breaking, anytime soon. 

Why? Because even though the $VIX may be a little oversold on a week to week basis, and the market leaders remain in a bubble, the market sentiment is not all that bullish, and stocks are no even close to being in an overbought condition.  

Take Care, AA 

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