ROME IS BURNING: What The F**k Just Happened and When Can I Buy?

There are many annoying market axioms out there — “buy the dip” or “too the moon” — that aren’t really axioms at all. They are just stupidity. For example, ask all the people who bought the bitcoin dip in January if they are riding lambos on the moon. They ain’t, nor will they ever. Their mindset is ignorant to how market mechanics work both fundamentally and technically. BUT there is one axiom that changed my entire trading perspective and surely will change yours too: All gaps get filled eventually (in case you are new to this whole trading thing, read up on what gap is here)

Going into this week, we had a slew of big, bloated tech names with stock charts resembling swiss cheese. In trading parlance, this is a virtual mousetrap for the big money and experienced sharks out there. On top of that, the macro backdrop was a screaming sell sign with inflation, treasuries, trade war, Trump, Google hacks, unemployment rate declines, and many more fun things. We were all frogs in a pot that finally began to boil too hot (yes, I did just rhyme there).

So, in short, this ‘chaos’ was really that chaotic at all for the frontrunners. Instead, they got their cake and got to eat it to. Here’s the cliff notes version of how shadow market mechanics unfold:

(1) Quants, hedge funds & money managers — aka the ‘Big Money’ — have been spooked about inflation & the rising US 10 Year Yield for god knows how long (when you manage billions, you tend to be a perma-bear)

(2) After the big August run up in stocks for no real reason at all, the Big Money started dumping. When these peeps dump they do it covertly, as seen in the clean upward wedge in the Nasdaq from the end of August until the dump off this week. 


(3) People eventually catch onto the trend in the Nasdaq, and that queued up the initial inkling of fear in us retailers out there. Big Money is also ‘Smart Money,’ always remember that. As people began to get spooked, Axe Capital & Friends decided to head over to the bond-side of the market and accelerate their selling there.

(4) Coincidentally, the Big Money i.e. Smart Money is also what most people refer to on StockTwits as “Shorts.” Having succesfully reaped their profits from their technology positions, they decided to make some money on the inevitable sell. When markets get spooked the ETFs sell like mad, which means their underlying holdings sell off in tandem. Hence why Amazon, Sqaure and the like took a trip to the slaughter house.

(5) My guess is most have closed their shorts by now, and are taking aim at entry back into the very tech names they sold. October 1st was the beginning of the fiscal quarter, and nothing makes investors happier than cheap tech looking to surge up 30% by the years end. Hence why every fund manager on CNBC is “calling” for the S&P to hit 3,000 by years end. Billionaires can foresee markets because they are the market.

(6) Buttttt don’t buy just yet, there are still sharks in the water. Day Traders & Prop Firms — aka anyone spamming the trending tickers on StockTwits via an anonymous account created in the last month — are still riding out their short calls and options trades for another week. The 3rd Friday of every month is what is colliqually known as Option Expiration day (really ‘eve’ but screw political correctness). You can expect them to be chasing minnows in the tech pool all weak, with a whole arsenal of technical fake-outs and a whipsaw of social media spam campaigns (look out for a swath of blog posts with nothing of substance in them… expect for mine that is). Then, come Friday the market makers will do their job in trying to screw everyone out of the money by pinning the price arbitrarily.

Crazy, right? Who would think a bunch of rich oligarchs manage to dictate the direction of our oh-so-capitalist financial markets! But conspiracy aside, technicals & fundamentals are great for stock picking, but situational awareness is crucial to being a good trader. You must understand the macro & behavioral backdrop of markets to truly avoid losing your hair every single time a stock or index hits a speed bump.

Now for the fun part — when should you buy? Well, if you are like most, you’ll take the bait and jump right back into Twilio tomorrow on the first green tick you see. Hate to break it to you though, everyone is expecting that move and will meet you with a truckload of sell orders into the close or Monday morning. Instead, the proper way to handle this is through pure, utter patience. Get a shopping list going over the weekend of stocks you like. Then study the chart, read the balance sheet, check the news. Literally do anything that keeps you from entering that market order at the opening bell.

Next week is likely to be ugly. Every single tech stock out there has a three-black-crowes pattern or some other bearish technical pattern that is like crack cocaine to the shorts out there. Let it play out, the bears are a sophisticated bunch — they’ll cover soon enough. For the novices out there, just take a week off and consider nibbling on some table scraps come Monday the 29th. As for the traders of the world, China is looking like a warm plate of orange chicken — and the fund managers have been calling it undervalued for months on end.

Long story short — draw lines on charts, read between the lines when market pundits talk. Also, turn off the news and don’t bother reading any bearish, misinformed article on SeekingAlpha. Both are fear merchants at this time… it makes money. Additionally, SeekingAlpha is a not-so-happy-go-lucky community of baby boomer dividend investors who spend their lives writing articles about dividends and their Tesla short calls (which they never actually commit too since they “buy and hold”).


P. Bateman

P.S. I am not going to bother spell checking this shit; and no, I don’t need JoeSchmoDumbAss to point out the occasional misplaced ‘Your.’ Do your own research if spelling is so important in your life.