We May Be Cast into the Unknown

My expectation has been that we would retrace because whether you’re a bull or a bear, stocks don’t tend to go straight up (as they have here) for too long before at least enjoying a retracement.

However, we’ve had a few developments that make the market’s direction particularly uncertain to me right now. I would like to discuss those here with you.

First, we had the parabolic move on $TSLA, followed by the short squeeze on $CAR (and the subsequent needle candle on the entire Transports Index), and now we’re beginning to see similar moves in many of the “meme” and (at least previously) “high short interest” stocks. In the cases of $AMC and $GME, I had originally called for such moves (based on my Elliott Wave counts) but I eventually retracted those calls because the structure of their rallies lost their impulsive “looks” to me (you can view those posts here and here). But now they’ve gone on to jump anyways.

Furthermore, @SqueezeMetrics has stirred up some interesting discussion with a somewhat cryptic tweet, the implication of which is that the inclusion of $TSLA into the S&P 500 was designed to destroy it (or at least to capture it).

Presumably this is related to this:

Billions of dollars of options call premium.

Now, Squeeze went on to plainly say what may be happening. Much of that premium may have been a hedge against this scenario:

And @coloradotravis has created a thread sensibly elaborating a bit on how the mechanism of hedging for this possibility may work here:

I bring all of this up because it’s strange what’s happening, difficult for me to predict, and possibly even sinister. Are we going to have an insane market squeeze? It’s possible. But there’s also a big part of me that wants to believe the market is more efficient than this. For instance, let us suppose this “theory” became widely accepted and known: what would even larger players decide to do in such a case? To me the answer is obvious: I think the most responsible players in the room (which probably also makes them the very largest players in the room) would simply pull liquidity altogether, being uninterested in playing this game (because of the risk). So, that’s my thesis here: that someone will try to poop on the party poopers and pull the plug on this.

My point in bringing all of this up is that I continue to expect some selling here, am open even to a lot of selling here, but I also recognize that things may get really weird and unpredictable here, so there may be times, especially if we start going straight up, where I won’t have much I can say. It would be difficult for me to actually call for higher prices in a move like that here. I don’t think that outcome is the most likely one, but we never know.

I was hoping for something in between these two extremes, but things are now somewhat unclear to me.

SPX


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