E Market Briefing For Tuesday, Sept. 8

S&P 'overshoots' - triggered great caution by us going into September, which was affirmed early last, week when the Index moved over the 'standard deviation bands' upper levels, which was just a variation of warning of unsustainable upside. Simply put: the S&P briefly exceeded 'even' the 'worry wall', hence an upside capitulation, a buying-climax in much the same fashion as inverse of a selling-climax, but with one important catch, it was a narrowly-led leadership, which had spent a couple months taking total control (Generals ahead of the troops), and we thought time to 'retreat'. 

That was primarily for the 'super-caps' that dominated the upside, because gains of course were concentrated in sectors that still thrived during the pandemic. Activity I'd discussed in August about the 'Robinhood' (or similar) trading groups impact, and the departure of a useful tool they had (Robintrack) showing how many clients owned a given stock from day-to-day) was part of a crescendo of late-stage speculation.

More recently you've heard about the huge open interest in out-of-the-money Calls, which might have been written (sold) by large hedge funds (Japan or elsewhere) not so much because they expect higher prices, but to generate income that lowers their cost-basis of holdings (and such strategies... whether considered manipulation or not ... are not unique and will vary among firms), most hedgers see similar algorithms.

That also means that as this market recovers, perhaps even helped in a short-trading week coming-up after Labor Day (4-day compressed trading week), many inferences so many drew about new apocalyptic cycles unfolding, might be correct 'structurally', as far as some strategies that have been employed. But it doesn't mean they expand immediately, or for that matter whether that approach was profitable, as the stresses of 'overshoot' (from those or other reasons) has been building or weeks, or longer.

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