Wall Street Wins Again As GameStop Becomes Game Over

 

 

In our previous report, we stated:

“While I fully expect a reflexive rally next week, that will likely be an opportunity to reduce risk rather than chasing markets. Such will be the case until we see money flows start to turn positive again, suggesting some underlying buying pressure.”

Such was indeed the cast as the markets successfully tested and held the 50-dma (red dashed line.) Despite the fact money flows remained weak, as shown in the chart below, the market did manage to regain previous highs.

While the money flow “buy signal” will likely trigger next week, the market is already trading 2-standard deviations above the 40-dma. Such suggests that the upside may be more limited over the next couple of weeks.

As I noted in Thursday’s 3-Minutes” video (subscribe for daily updates), the rally, and even the attempt at all-time highs, is well within the context of the consolidation process. With the money flow signal starting to bottom, we added exposure to portfolios this past week. 

While the market did rally as expected last week, the rally is still at risk currently given the more extreme overbought and bullish conditions. Speculation remains rampant, and there are many indicators from relative strength to participation that suggest “something isn’t quite right with the market currently.

As such, we continue to suggest a modicum of caution with equity risk. While there is nothing to suggest a much deeper correction is coming, there is also nothing suggesting there isn’t.

The point of portfolio management is the management of risk. In other words, if you turn your gains into a loss, you aren’t managing risk appropriately.

Such is something Reddit readers learned the hard way last week.

It All Ended Badly Very Quickly

Last week, we discussed how the entire “GameStop” saga would eventually end. To wit:

“Think about a crowded theatre. At the moment, everyone is going into the theatre (buying), and no one is selling. However, when they begin to try and sell their positions, no one will be there to buy from them.

Such is the equivalent of yelling “fire.” The smart ones will get out early. The rest will find themselves scrambling towards a very narrow exit. Once the price starts falling, the sellers will swamp the buyers driving the price lower. In GameStop's case, given the company’s value is around $10, where it was trading before the mania, the decline will be both brutal and fast.”

I also stated that Wall Street would likely “win” the battle in the end. They did.

One of the key players in the GameStop” saga was Keith Gil, who seemingly minted millions of dollars trading in GameStop and other stocks. His story, which I have not been able to verify thoroughly, is that he turned $50,000 into roughly $50 million trading stocks and options.

1 2 3 4
View single page >> |

Disclaimer: Click here to read the full disclaimer. 

How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.
Alexandra Gray 3 weeks ago Member's comment

The problem is the trapped bears feel a need to post negative comments to protect themselves from losing millions.