Are Robbinhood, Reddit and SLV like sun dogs for a stock market crash?

Are Robbinhood, Reddit and SLV like sun dogs for a stock market crash?

01 February 2021 from CarlsquareReading time: 6 minutes

It can hardly have escaped anyone how writers on the online forum Reddit hunted shares with a high proportion of short selling in the past week. This was done to crack the hedge funds and profit from the price increase that follows when they must cover their positions. The phenomenon is new and price manipulation is just the prefix of this. We are surprised that the authorities have not already intervened.

To be honest, we doubt that it is a mass movement driven by private investors. It is hedge funds that are being hunted. But it is also hedge funds that own Reddit. This is what hooks on and drive the hunt to its peak. There is more under the surface here…

The companies in focus are those whose shares are the most shorted. There are reasons why they are shorted. Citron, which is one of the most well-known hedge funds, is run by real smart traders who base their actions on fundamental analysis, that is, things that was done in the past- studied corporate profits and such. Since the central banks began to pump liquidity into the market, interest in momentum has risen while interest in fundamental analysis has declined.

During the weekend, the focus has shifted to silver. It is a small asset class and therefore relatively easy to influence.

The Hunt brothers tried to take over the silver market in the early 1980’s. The Hunt brothers were, among other things, the model for the popular TV series Dallas.

For example, watch this video:

https://www.youtube.com/watch?v=MXpNfNAyo9M

The silver price peaked at 120 USD but fell when their positions crashed, to as low as 7 USD. Note that the graph above is logarithmic, which is why the drama was greater than what appears from the graph. 

The advantage of silver, ahead of a hard-hit retail chain like Gamestop, is that there is a fundamental demand for silver. It is a finite resource, and it is a metal used in the industry. Our view, and it is also common on Reddit, is that paper silver keeps prices down. This is not to say that this raid will occur or even succeed. But it is well worth keeping an eye on this week.

On Twitter, #silversqueeze is currently trending.

Silver has not moved much yet but will be in focus when trading in the US starts this week.

Examples of related instruments: Long

Examples of related instruments: Short

Robinhood, which is the brokerage firm linked to the private investors’ revolt, has major challenges with its liquidity and capital requirements. There is a concern that the company will go under- during its own success. Parallels are drawn to the collapse after Lehman Brothers. But Robinhood is a small player so there must be visible spreading effects first before you should worry, as we see it. This mostly feels as a deliberate spread of rumors.

Elon Musk alone raised the price of Bitcoin by 15 percent last Friday in just five words, as seen above.

In any case, the well-timed tweet made Bitcoin test the upper limit of the wedge formation.

One can rightly ask oneself whether all these strange pheonomena foreshadow a stock market crash. Alternatively, is it just an expression of a mass phenomenon when Covid-19 has kept people trapped in their homes for far too long?

Odd phenomena such as sun dogs, such as those over Stockholm from April 1553, have always attracted interest since they are ominous major events.

The Q4 2020 reporting season in the US

When just over a third of the S&P 500 companies have reported, the proportion of positive earnings surprises has fallen marginally to 84 percent, while 77 percent is better in terms of revenue. Still very good, in other words. The three best sectors are Technology, Health Care and Financials – all with just over 90 percent of the reports that have surprised positively at the profit level. On the other hand, municipal power plants etc. (utilities) and the real estate companies have only managed to surprise positively in terms of profit in half of the cases. At the same time, there are few companies in these sectors that have reported their figures yet.

For all 184 S&P 500 companies that have reported so far, the average positive earnings surprise is around 10 percent. At the same time, analysts have revised their earnings forecasts upwards by 2.6 percent ahead of Q1 2021 as a weighted average.

Of the larger and well-known companies, Caterpillar, Eli Lilly, Facebook, Apple, Johnson&Johnson, Stanley Black & Decker, Whirlpool, Microsoft, Texas Instruments and Kimberly-Clark reported positive result deviations last week.

The results in Q4 2020 were worse than expected for e.g., McDonalds, Tesla, AT&T, Paccar, Verizon, and General Electric.

Source: Reuters/Carlsquare

The Swedish OMX30 companies have performed almost as well as the S&P500 universe so far, when 12 out of 28 have reported. 83 percent of these reports have surprised positively on the result, but only 67 percent on the revenue.

Source: Reuters/Carlsquare 

Momentum

If you look at the stock market, it is still elevated by too much liquidity in the system. Although the Reddit people will be both praised and soon blamed for various market manipulations, it is the result of a generous monetary policy.

The graph below shows how the S&P500 index has risen above the long trend line since Joe Biden was elected President of the United States. See weekly graph below. The stock market is thus technically overbought, but it is a stage that it may be in for long periods.

A trigger is needed to make it fall. The ongoing turbulence can be such a trigger where the hedge funds must quickly close all short positions. To do so, in many cases they are forced to turn off long positions to be able to afford to close the short positions. Such movements usually create buying opportunities, but we will see how the balance nets out.

The S&P500 index tests the MA50 in the daily chart below. MA50 is an important level in the general consciousness in the United States. A break from this, which may well be in the cards, is likely to trigger a lot of stops. MACD has created a weak sell signal. Those who are risk-averse and like to be a contrarian have an opportunity to go against the market here.

Examples of related instruments: Long

Examples of related instruments: Short

Nasdaq is still trading within the narrow rising trend. MACD has once again generated a weak sell signal and MA50 may be next.

Examples of related instruments: Long

Examples of related instruments: Short

Tesla closed Friday trading below MA20, and the next level of support can be found around 750 USD. Valuation is high and competition is increasing with new EV-fleets being introduced.

Examples of related instruments: Long

Examples of related instruments: Short

Apple stock closed Friday just below MA20 but still above the rising trendline. Note how MACD is getting close to a weak sell signal. On the downside, MA50, Fibonacci 23.6 and MA100 serves as support levels.

Examples of related instruments: Long

Examples of related instruments: Short

The German DAX index is back down in the old gap that it struggled with for several months:

Examples of related instruments: Long

Examples of related instruments: Short

MACD has generated a weak sell signal in OMXS 30 and is Fibonacci 23,6 around 1 930 next?

Examples of related instruments: Long

Examples of related instruments: Short

The EUR/USD is consolidating between Fibonacci 38.2 and Fibonacci 23.6 below the falling MA20:

Examples of related instruments: Long

Examples of related instruments: Short

Bull & Bear Certificates

 Symbol ISINIndex reference instrumentFactorTypeCur.BidAsk 
BULL AAPL X10 VNT3
DE000VE4KKK7 Apple Inc. 10.00 Long DKK 0.162 0.166
BULL AAPL X10 VNT4
DE000VE53624 Apple Inc. 10.00 Long DKK 0.028 0.032
BULL AAPL X10 VNT2
DE000VF8D9Y9 Apple Inc. 10.00 Long DKK 0.326 0.332
BULL AAPL X10 VNT6
DE000VP2SBE3 Apple Inc. 10.00 Long DKK 32.10 32.58
BULL AAPL X10 VNT7
DE000VP343E3 Apple Inc. 10.00 Long DKK 25.68 26.07
BULL AAPL X10 VNT9
DE000VP485T0 Apple Inc. 10.00 Long DKK 2.57 2.61
BULL AAPL X10 VNT8
DE000VP4VGN3 Apple Inc. 10.00 Long DKK 12.83 13.03
BULL AAPL X10 VNT10
DE000VP69NS9 Apple Inc. 10.00 Long DKK 1.28 1.30
BULL AAPL X10 VNT11
DE000VP9V6S3 Apple Inc. 10.00 Long DKK 128.43 130.34
BULL WTI X10 VNT8
DE000VP29RK1 WTI Light Sweet Crude Oil Future Sept 2021 10.00 Long DKK 61.09 61.58
BULL WTI X10 VNT9
DE000VP3A688 WTI Light Sweet Crude Oil Future Sept 2021 10.00 Long DKK 48.88 49.27
BULL WTI X10 VNT10
DE000VP3L891 WTI Light Sweet Crude Oil Future Sept 2021 10.00 Long DKK 4.89 4.93
BULL WTI X10 VNT11
DE000VP3TYV5 WTI Light Sweet Crude Oil Future Sept 2021 10.00 Long DKK 24.44 24.64
BULL OLIE X10 VNT9
DE000VP10DA2 Brent Crude Oil Future Oct 2021 10.00 Long DKK 0.016 0.02
BULL OLIE X10 VNT8
DE000VP1RE94 Brent Crude Oil Future Oct 2021 10.00 Long DKK 0.001 -
BULL OLIE X10 VNT11
DE000VP2QPN8 Brent Crude Oil Future Oct 2021 10.00 Long DKK 0.008 0.015
BULL OLIE X10 VNT12
DE000VP2SA70 Brent Crude Oil Future Oct 2021 10.00 Long DKK 0.078 0.082
BULL OLIE X10 VNT13
DE000VP3A662 Brent Crude Oil Future Oct 2021 10.00 Long DKK 285.58 287.82
BULL OLIE X10 VNT14
DE000VP3L883 Brent Crude Oil Future Oct 2021 10.00 Long DKK 117.49 118.39
BULL OLIE X10 VNT15
DE000VP4ETZ6 Brent Crude Oil Future Oct 2021 10.00 Long DKK 23.53 23.71

Gold is currently still held up by Fibonacci 38.2. Increased volatility on the equity market may give some energy to the metal. A break on the upside above MA100 and Fibonacci 23.6 may be next. In case of a break to the downside, Fibonacci 50 around 1 770 USD per ounce serves as support:

Examples of realted instruments: Long

Bull & Bear Certificates

 Symbol ISINIndex reference instrumentFactorTypeCur.BidAsk 
BULL AAPL X10 VNT3
DE000VE4KKK7 Apple Inc. 10.00 Long DKK 0.162 0.166
BULL AAPL X10 VNT4
DE000VE53624 Apple Inc. 10.00 Long DKK 0.028 0.032
BULL AAPL X10 VNT2
DE000VF8D9Y9 Apple Inc. 10.00 Long DKK 0.326 0.332
BULL AAPL X10 VNT6
DE000VP2SBE3 Apple Inc. 10.00 Long DKK 32.10 32.58
BULL AAPL X10 VNT7
DE000VP343E3 Apple Inc. 10.00 Long DKK 25.68 26.07
BULL AAPL X10 VNT9
DE000VP485T0 Apple Inc. 10.00 Long DKK 2.57 2.61
BULL AAPL X10 VNT8
DE000VP4VGN3 Apple Inc. 10.00 Long DKK 12.83 13.03
BULL AAPL X10 VNT10
DE000VP69NS9 Apple Inc. 10.00 Long DKK 1.28 1.30
BULL AAPL X10 VNT11
DE000VP9V6S3 Apple Inc. 10.00 Long DKK 128.43 130.34
BULL WTI X10 VNT8
DE000VP29RK1 WTI Light Sweet Crude Oil Future Sept 2021 10.00 Long DKK 61.09 61.58
BULL WTI X10 VNT9
DE000VP3A688 WTI Light Sweet Crude Oil Future Sept 2021 10.00 Long DKK 48.88 49.27
BULL WTI X10 VNT10
DE000VP3L891 WTI Light Sweet Crude Oil Future Sept 2021 10.00 Long DKK 4.89 4.93
BULL WTI X10 VNT11
DE000VP3TYV5 WTI Light Sweet Crude Oil Future Sept 2021 10.00 Long DKK 24.44 24.64
BULL OLIE X10 VNT9
DE000VP10DA2 Brent Crude Oil Future Oct 2021 10.00 Long DKK 0.016 0.02
BULL OLIE X10 VNT8
DE000VP1RE94 Brent Crude Oil Future Oct 2021 10.00 Long DKK 0.001 -
BULL OLIE X10 VNT11
DE000VP2QPN8 Brent Crude Oil Future Oct 2021 10.00 Long DKK 0.008 0.015
BULL OLIE X10 VNT12
DE000VP2SA70 Brent Crude Oil Future Oct 2021 10.00 Long DKK 0.078 0.082
BULL OLIE X10 VNT13
DE000VP3A662 Brent Crude Oil Future Oct 2021 10.00 Long DKK 285.58 287.82
BULL OLIE X10 VNT14
DE000VP3L883 Brent Crude Oil Future Oct 2021 10.00 Long DKK 117.49 118.39
BULL OLIE X10 VNT15
DE000VP4ETZ6 Brent Crude Oil Future Oct 2021 10.00 Long DKK 23.53 23.71

Examples of related instruments: Short

Legal notice

This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

27/07/2021 23:48:44

 

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