Navigator Algorithms – 100 Cash
Revenge of the Nerds
No doubt you have heard by now that a bunch of day traders in a Reddit social media group just cost a couple of prestigious hedge funds about $18 billion. The hedge fund managers then went on CNBC whining for regulations to stop these kinds of traders. The Biden administration promised to look into the matter.
Before the day was done, Reddit had shut down the trading group for “hate speech.” But they were back up by yesterday evening – though the group is now private. Perhaps the group cut a deal with Reddit to stay alive by remaining private. But the whole situation reeks of the same dangerous virus overtaking the country. Free speech is under attack, and communism is rising fast. “Shut up!” “Obey!” say our new leaders in Washington D.C.
But let me make sure I get this right. First, some hedge funds shorted a company called GameStop (GME). Shorting means that the hedge fund makes money if the stock drops in value. As usual, the hedge funds went on with their favorite CNBC hosts (co-conspirators) to slam the company and drive the price down without regard to whether it destroys the company or its workers. Hedge funds do this all the time – it is a rigged, insider game but perfectly legal.
Except for this time, there was a melding of gamers and new day traders. Gamers love GameStop. And while GameStop is a brick and mortar company somewhat on the ropes, the company has just come out with a new strategy to move into an online model. The hybrid gamers/day traders got mad at the hedge funds. So they started buying the stock and bidding it up – the opposite of what the hedge funds needed. The next thing you know, the stock is up 700% in a day, and the hedge funds were brought to their knees.
The Reddit trading group has 2.5 million members. With scarcely a few hundred to a few thousand dollars each, they beat the hedge funds at their own game and left GameStop with a fighting chance to implement its new strategy. So the hedge funds are crying on CNBC, whining to the Biden administration, and begging the SEC to get involved. Yet, there is nothing illegal about what the Reddit Group did any more than it is illegal for the Hedge Funds to short a stock and talk it down. I am not talking morality here. After all, this is Wall Street,
Some talking heads (CNN, of course) were quick to blame Trumpism. Naturally, this misses the point. Simply put, everyone is tired of the rigged game. Trumpism is a symptom, not a cause. It does not matter if you are talking about bailed-out bankers, greenie weenies in their Lear Jets, perceived stolen elections, or the insider’s game on Wall Street; people are tired of it.
And if you have not seen the chain link fence now surrounding the capital with razer barbed wire curled around the top of it, you are missing a sight to behold. My vote is this. With the 5,000 National Guard troops in D.C., along with the new fence, all they need to do is throw up a few guard towers, and we now have all of these politicians in prison, which is where most of them belong.
In the meantime, our exit from the market was a true squeaker on Tuesday. We exited the S&P 500 at 3851.50, and it fell all the way to 3700 yesterday and overnight. In fact, the market sliced right through the 21-day EMA and the Weekly Expected Move, finding support at 3700, which also is the 50-day moving average.
You have to go all the way back to October to find a similar negative launch day. At this writing, the S&P 500 is back to the Weekly Expected Move at 3767. That likely has a few options market makers breathing a sigh of relief, as that is the level they need to maintain to avoid significant losses at expiration tomorrow. Maybe they can get some help from the Reddit group?
At this point, we are getting the correction I expected, and I will look for a bottom and entry point. It would be highly unusual to have two market crashes start two years in a row on at around the same time. I cannot exclude the possibility, but it is not what I would expect here.
For now, I am expecting something contained at 10% or less, with 3500 or so being the worst case, as I outlined in the 2021 forecast video last week. The next, large, crash-like correction should come from the 18-month cycle, which would bottom around late May. It would be a bit early to start into that correction now. That is my best guess anyway.
Yesterday, the Federal Reserve met and left their policies intact while conveying deep concerns about the virus and the economy. Likely, that backdrop served as incentive for the sellers yesterday.
For now, hat tip to the gamers. It looks like they are destined to make a habit of this. The control freaks in Washington D.C. wanted everyone to stay home, right? Apparently, they need to be careful what they wish for! The Reddit Group’s new targets are AMC Theatres and Nokia. It is fun to watch, but don’t be tempted to participate.
The $18 billion hedge fund losses were similar to Hillary losing the Presidential election in 2016. The establishment was caught off guard – and their cheating algorithms were inadequate. The hedge funds are not stupid and are not likely to be caught off guard again. Like the establishment globalists, the hedge funds control the media. In this case, they control the financial media.
The game is rigged – just like Washington D.C. We made 896% last year keeping it simple. We are up 55% so far for the month of January. No need to play games or into the hands of the Wall Street crooks. I ran a hedge fund in the 1990’s. I know their games well.
A.F. Thornton