Retail Traders And Reddit Rattle Wall Street – Market Rotations Will Reward Those That Are Ready

The big news has been GameStop’s (GME) incredible rally from price levels below $10 to an incredibly high price peak near $483. The ability of retail traders to pull small accounts and actively target heavily shorted stocks, pushing short-sellers into a “short squeeze” has everyone talking about it. Many people are calling for investigations on both sides saying the system is broken and this should never be allowed to happen.

GameStop Rally Shakes Up Wall Street

Thanks to the ability of social media and smartphones, people all over the world can now share ideas, content, and excitement about a stock symbol or opportunity in the market in an instant. Unlike in the 1980s, when individuals had to get on the phone and call their closest circle of friends, social media and technology allow one person to post a message that can instantly be seen by thousands or millions of people. News channels are more than willing to jump on the story and make it even bigger. We live in interesting times where information flows faster and freer than ever before. The Gamestop Daily chart below shows what can happen when this happens.

(Click on image to enlarge)

The take away from all of this is if you were lucky enough to already be invested in some of these targeted symbols – good work. Ride it out and grab the profits while they are there. If you were not that lucky, please be very cautious of trying to jump into these trends very late in the cycle. Risks are very high and these types of “flash moves” typically don’t last long. Remember that skilled traders always take profits when they can.

SPY Reset Event/Deep Rotation & Recovery

The end result of all of this is that larger institutional funds suddenly realized they needed to re-evaluate their risk exposure, and particularly their short trade risk exposure. This means a very large number of these firms are suddenly looking at what a 2x or 3x Standard Deviation range rotation would do to their capital and how they have planned (or more likely NOT planned) for this type of event. 

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Monica Kingsley 1 month ago Contributor's comment

I agree with the 20-d MA postulate, but given Wednesday's selloff and absence of post-Thursday recovery beyond the opening 45min earlier today, this may take a bit longer to repair than the preceding examples indicate. Still, the 15-day range max is what I also find as very realistic.