- It is a revenge trade, it’s time for the Bears to take their revenge
- The short squeeze happened when the VIX index exploded above the 30 mark
- No panic buying for safe haven-gold
We all know one thing which is, that markets usually grind to the upside but fall like a rock. Recently the nature of the sell-off that we are experiencing in the market can simply be classified by using one term: revenge trade. Traders have been looking at the market for the past year moving in one direction which was skewed to the upside. Now, it’s time for the Bears to take their revenge and the Dow Jones is set for it’s worst monthly drop since 2008.
By looking at the Dow, the question’s which comes to the mind is, what does this mean for all of the people who have been shorting volatility? Well, This is only a start. A trend which you don't see that often, but we have been witnessing it for the last two weeks; traders were taking long bets on the vix index and call options have been more popular for the last two days. The short squeeze happened when the index exploded above the 30 mark, you could tell that the bears are feeling the pain. If this rout continues, I would say we are likely to go above the 60 mark. The VIX index is having it’s best month since 2008.
US futures and European markets are trading in a deep red territory and the S&P 500 suffered it’s worst one-day loss since 2011, being ready to face more damage. This is what you call revenge.
The fear behind this sell-off is the economic data is improving in the US and this would stimulate the Fed to take more aggressive action towards their monetary policy stance. But, it would be foolish to think that the Fed is going to sit on it’s hand and do nothing when the economic health of the country is improving. We would say that investors should not be worried about the fact that the improving health conditions of the country requires normal conditions.
The sell-off in the market is nothing more than just long overdue market correction. As there is no fundamental situation which has made matters worse. The earnings season has told us one story that corporate profits are strong and the consumer confidence shows that investors are comfortable with their spending. Under these conditions, the only thing which can be blamed for the kind of sell-off which we experienced yesterday is a machine- AKA high-frequency trading. Aglos triggered once again! The regulators need to address this issue because a drop like this is worse than anything on the street, we are talking about real companies with revenue streams.
Another reason why we think that this is a healthy correction is that we are not seeing any panic buying for safe haven-gold. Usually, investors would park their funds in gold and the price of gold would reflect that. But, under the current circumstances, we aren’t seeing hot honey (yes I mean honey) isn’t flowing into gold. Because under a real panic situation, we would have seen more than $40 move in a single day for the gold price.
If there is anything which is selling at a massive discount, it has got to be your cryptocurrencies. Bitcoin is down nearly -69.29%, that is some discount- but that is if Bitcoin going to return to it’s all-time high. We have broken the $6000 mark, the low of the day is 5992 and this indicates that we are very close to the bottom. It is certainly possible that we could drop still a little more, but we do think that the current sell-off is heavily oversold by any measure. One may want to pay less attention to adverse headlines and look at the price curve more closely. Why? You need to think who is abandoning the ship and who is coming on board or filling their tanks.