Market action explained…

There has been a lot going on in the market. Right now, we’re halfway through earnings season, the S&P and Nasdaq are back at the 50 SMAs (a start of a FAAN-Gover!), and the news is on fire with the Wallstreetbets lit short squeeze on GME and silver.

For these reasons, and more, I thought I’d take a break from our Tuesday trade editions and give you a bonus Macro video update.

First and foremost…

Despite all the action of the market, I don’t think this is a bubble. Instead, I think the action can be explained by several different factors: 

  1. COVID.
    Despite the rollout of vaccines, Covid is still very much prevalent and affecting our markets.

  2. Work-from-home.
    Because Covid is still around, many people are still working from home. This means individuals who previously had not traded have more time to do so, so there are just simply more people in the market.
  3. Online Resources.
    It’s easier than ever to get stock market education online, which is evidence of me writing you this newsletter, as I also got my education online. Additionally, people who are learning how to trade are having an easier time executing these trades. Online brokerages like Robin Hood, JP Morgan, Chase, etc, make it very easy to just go on our phone and buy a couple of shares of stock.

It’s these three reasons that I think can explain the craziness of the market right now, and why I don’t think we’re headed toward another dot com bust.

So if we are not in a bubble, how will all of this shake out, specifically with Gamestop and other short squeezes?

GameStop (GME):

As far as GameStop (GME) is concerned, I don’t think this movement has it in itself to crash the market. Yes, hedge funds lost money on the short squeeze, but we trade shorts squeezes all the time in regular market conditions. GME was certainly an extreme example, but it isn’t the first or last time a short squeeze will be used.

Additionally, I don’t see how GME could have much more room to run. The short-sellers haven’t given up yet, but you have to ask yourself if you aren’t already in… who in their right mind would buy it now? We know they bought it last week, we know they bought it the week before, but no one’s jumping in at this high price. If there are no new buyers, the stock cannot continue to hold its high valuation and price will begin to stagnate or drop.

We’re simply just witnessing a game of chicken — who will win? Hedge Funds or the people of Reddit? Either way, I don’t think it’s going to break the market, but I do think it’s very fun to watch.

For more information, click on my video where I give a deeper explanation on these topics:

How will the GME squeeze resolve?

What to do about silver?

What are key levels to watch in the S&P, and how I’m handling the market right now?

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