Wednesday, 7 October 2020

Stock Market: Market Volatility Caused by Tweetstorm


Well, i did warn that October going to be rocky / choppy, hence "Roctober". But i didn't expect that it was caused mostly by tweets. But then, why not? POTUS' tweets are headlines.

That's nature of a volatile month, which doesn't always mean bearish month. September is more of a bearish month while October is choppy, but it doesn't mean bearish.

The most choppy period since the low in the last week of March and most of April, and then it's also the most bullish period. SPX was up 30% in less than 5 weeks! I repeat 30%! I'm of course not suggesting anything like this in October, just that choppiness doesn't automatically mean bearishness. It can be, just not always. I'm cautious, but not totally bearish on October.

We have headlines all the times, and POTUS has never stopped tweeting. D'uh! (Asking the POTUS to stop tweeting would be harder than to ask a kid to sit still). Because this is Roctober, his tweets have greater effect.

(Click chart to enlarge)

  Critical Levels  

The 2nd point of this post is this: while his tweets are random, but the levels (in this case QQQ) aren't random at all.

The gap (light green band) lent supports to both tweet-induced declines. And QQQ closed right at the bottom of the rising channel. Surely this is no coincidence.

Last but not least, because prices were sitting right on battle line resistance level (see chart), a negative tweet happened at the time should be bad for the market. 

  POTUS Put  

Third and most important point. After that threatening tweet that basically said "vote for me or no stimulus package!", the market didn't like it. POTUS clearly didn't see that coming because he fears nothing more than a market decline. Especially so close to the election. He loves to tweet about the market's ATH, and if the market rolls over just weeks before election, he basically undo everything he had achieved in the last 4 years. Bummer!

Clearly, it wasn't a well thought out tweet. Or that in the heat of fighting with auntie Nancy (Pelosi), he had neglected the market. It was a miscalculation. Are we still surprise by this? Quantity trumps quality when you tweet so much.

Fear not, he can always fire off another tweet to reverse the damage, and he did just that later in the day. Must work fast as election draws near. So the market was saved from the edge. In the case of QQQ, literally on the edge of the bottom of the channel. If we have another day of decline today, things gets uglier for the bulls.

"Lived by the tweet, and died by the tweet" should be the motto for the market. But as i said, this would cause greater volatility in October. If the same tweet appeared in, say June or July, the market's reaction would be more muted. I'm sure there were many tweets in the last few months that should cause much volatilities but didn't. Seasonality matters.

If the market doesn't go up today, he will keep tweeting until it does! You can count on that. Everybody talks about a Powell Put, nobody talks about a POTUS Put...The market has both. Why wouldn't the POTUS want to see the market at ATH just before the election? Even if he couldn't achieve it, he certainly wouldn't sabotage the bull market deliberately with some careless tweets.

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