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The Big Short movie guides us to what is next for the stock market
Created on: 4/6/2020 2:16:24 PM

the-big-short-movie-guides-us-to-what-is-next-for-the-stock-marketThere is nothing new in WallStreet, it is only the players that change. Sometimes a market player or an event gets ahead of the crowd and WallStreet has to play catch up.

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It is important to understand major WallStreet players do not want to miss out on a money making moves.  



The big short




In the movie 'The Big Short' some market players got ahead of the crowd and shorted the US housing market.

When the US housing market began to crumble the majority of WallStreet was long and wrong, and losses on the longs were going to be incredible, they had to get short. WallStreet needed to load up on shorts to participate in the money making down trend.

There is a scene in the movie where Dr Michael Burry is on the phone expressing his frustration as to why the banker had marked up the housing bond index when the mortgages themselves were crashing, the index should have been marked down, of course this was banker fraud to allow the bankers themselves to short the same index as Dr Michael Burry. POINT: Wallstreet does not want to miss out on major market moves.




Roll forward to 2020 and the SP500 suffers its worst 30% down move since 1929 (Wyckoff terms this as a 'Sign of Weakness'). Wallstreet has not made any money on this move, if fact like the housing market they are long and wrong, and like 2008 they need to get short. The question is how?

The answer is simple, re look at 2001 and 2008 SP500 price actions (chart below), after price had fallen to the red line (250 weekly SMA), a bounce was organised to near the blue line (150 weekly SMA) to allow WallStreet market players to short the coming down trend.

The stock market has not had all the bad news yet, earnings slump, supply chain issues, derivative blow ups, bank risk news, c19 news. There is plenty of ammo for WallStreet to blame a down trend on while they profit with shorts. The chart below shows how we can expect a rinse and repeat of 2001 and 2008 organised bounce.

Of course the FED is printing and TRUMP is trying to get trillions passed to stimulate the economy, however will it be enough or quick enough. Some say the FED balance may need to go to $10 to $20 trillion, some say modern money theory is required. The doubt and delay around these programs will add to the market uncertainly.

The next play to watch for is the WallStreet bounce to allow shorts to be loaded up.

In Wykoff terms a low volume weak bounce (like 2001 and 2008) will be named the 'Last point of Supply', and if a price slump follows, price will break the ice near the 2200 level to lower lows. Of course if we get price strength shown by high volume and wide spread the 'sign of weakness' can be discounted as abnormal.

We are waiting and watching.

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SP500








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Changes in the world is the source of all market moves, to catch and ride the change we believe a combination of Gann Angles, Cycles, Wyckoff and Ney logic is the best way to ride the change, after all these methods have been used successfully for 70+ years. This post is a delayed and small sample of what is avaliable to members. Sign up to enjoy the full service.

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Investing Quote...

..“The power to determine the trend of the market is due to my knowledge of the characteristics of each individual stock and a certain grouping of different stocks under their proper rates of vibration. Stocks are like electrons, atoms and molecules, which hold persistently to their own individuality in response to the fundamental Law Of Vibration"…."After exhaustive researches and investigations of the known sciences, I discovered that the Law Of Vibration enabled me to accurately determine the exact points to which stocks or commodities should rise and fall within a given time. The working out of this law determines the cause and predicts the effect long before the Street is aware of either”..

William D Gann


...“To me, the 'tape' is the final arbiter of any investment decision. I have a cardinal rule: Never fight the tape!”...

Martin Zweig


After a question on how to become a better investor professional Mr Munger responded, ..“Read history, read history, read history."..

Charlie Munger

.."Until an hour before the Devil fell, God thought him beautiful in Heaven"..

Arthur Miller, “The Crucible”
 [Contrarian Investing]





.."A market is the combined behavior of thousands of people responding to information, misinformation and whim"..

Kenneth Chang




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