If you were scared by the action today on the indices and in the market in general, then don’t worry you were not alone. But also you shouldn’t be worried for another reason and this is one of the dirty little tricks used by the “big money” of markets.
If you were only watching the price action on the chart of $SPY today then you’d see a very harrowing scene, but if you were watching what I call “under the hood action” (or money flow)…the actual buying or selling that was going on, then you would have noticed something quite different.
While $SPY dropped 2.05%, it actually ended up picking up over 2.5 billion dollars in money flow accumulation.
So, while the price dropped there was actually more than 2.5 billion dollars worth of money going into the ETF (bullish).
It’s something that most retail investors do not know about because it’s not really spoken about much.
Yet, it’ is something that’s quite important.
Observe the following chart (courtesy the SuperStocks App https://goo.gl/FDTCt1)
Notice the final indicator at the bottom, the “Money Flow Accumulation”, or the amount of money that’s going into the stock. It can rise and fall but in this case, as you see, throughout the day they were actually buying.
Even as the price dropped.
How does that work?
Essentially it’s skilled traders (or at this point in the functionality of markets, algorithms) that use a few methods of buying while the price drops.
One method of this buying and selling your position; e.g. – buying 10,000 shares slowly as a stock drops (so
Or manipulate the price of $SPY with the use of the $ES_F futures.
Simplistic examples, and there are many other methods. The specifics don’t matter that much.
All they did, regardless of how, is they created a market environment that seemed bearish that was in-fact bullish.
So what happened today in $SPY was, more than likely, a trick.
Don’t always believe what you see on the surface. There was a lot going on as the big money traders did some quarterly rebalancing (moving around the stocks in their portfolio) and got ready to head home for the holidays. That act is part of something called “quadruple witching“.
Next, Christmas Eve trading volume is historically very low and they like to enter the holidays on a good note.
Or maybe something will happen geopolitically that will alter the course of the market. Let’s wait and see.
Another point I think I should make:
This whole thing about a government shutdown has no material effect on the markets. The markets are based on the market consensus *cough* of the valuation of various corporations. The government being shutdown temporarily is not a weighting factor of the valuation of the majority of corporations.
Perhaps that’s why we so what we did today with the media spinning a shutdown as an impetus for market weakness and high volatility.
They have also been saying the market swoon dive we’ve seen since this past week’s FOMC and the subsequent Powell speech have a strong relation. I find that hard to believe. If you pick out certain sentences it sounds horrible, but taken on the whole it wasn’t all that bad.
A final point is related to the news of General Mattis’ departure in February. While some of the media has taken his departure to be a negative thing for the markets and namely defense stocks, most of what I’ve read said he was a key part in keeping President Trump reeled in a bit. The WSJ and others mentioned he helped to pacify other nations when the President’s rhetoric was excessive.
Which means that if anything, this is
So now is not the time to panic.
If anything, just wait it out. Also, you should be hedged and if we see more downside you should be willing to take on hedges or go to more cash.
You can check out my article here about hedging and I plan to write another one soon.
And in the end don’t worry. It’s just money. And as those who have been following my blog should know, one of my cardinal rules in trading is to never use any cash you couldn’t literally burn and not be able to live comfortably without.
So either I’ll see you around trading thin volume on Monday or not, but have a happy holidays.
Enjoy what matters…your family.