Monday , 6 December 2021

The Odds Of A Market Meltdown Reversal Continue To Rise

…Previously, all the dips — even micro-dips — were almost instantaneously bought by the herd of traders and homegamers driven by Pavlovian reflexes, thereby reinforcing the power of positive feedback loops but, as Zero Hedge observed, this loop may finally be reaching its sell-by date. Something’s different this time.
This article by Lorimer Wilson, Managing Editor of munKNEE.com, is an edited ([ ]) and abridged (…) version of an article by International Man.
For the first time since the collapse in March 2020, the S&P 500 has failed to rebound back to new highs after testing its key uptrend technical levels.
Source: Bloomberg
The larger problem is the risk that an external shock — a black swan — will break the entire chain of dip-buying and options-based speculation and eventually trigger a put-buying stampede, especially among the home-gamers who have never experienced a down market…As one analyst pointed out, the 1987 crash is a good illustration of the risks associated with out-of-control positive feedback. In the chart below, he laid the recent S&P 500 run against the final 12-months preceding the 30% stock market meltdown in October 1987.
We have no idea whether the high has yet been reached or what “shock” might cause the present coiled spring to lunge into reverse but, with each passing episode of sharp selloffs and only partial BTFD (buy the freaking dip) rebounds, the odds of a meltdown reversal continue to rise.
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