Wednesday, 24 February 2021

Stock Market: What Does The Feb Flash Crash Mean?

The pullback that i've been written in the last few posts had come to pass. But not quite the way i expect (well, that's to be expect. Expect the unexpected).

Take AAPL, it hit my target on the dot, but i didn't expect the speed of that move, and even less with that long candle tail. The following chart is taken from my previous post Stock Market: 2 Days Delay to My Pullback Call?

(Click chart to enlarge)

And this is today's chart appears below.

(Click chart to enlarge)

It isn't just AAPL  that have that long candle tail, the following QQQ chart has that too. In fact, just about every tech stocks and his dogs have that long candle tails: TSLA, TAN, ICLN, ARKK, and on and on...

This quick gap down on open was so sharp that it could be described as a flash crash (at least a mini flash crash).  But equally fast was the bounce that resulted in that long candle tail. From the chart below, you can see that the bounce was 8% - 6.2% = 1.8%, and it was so fast that i didn't have time to think about what to do. This is likely that there were a lot of bids below the level QQQ = 317. So as soon as prices drop below it, large number of orders bid the prices up. I, too, have some bids at the channel bottom of QQQ (see chart below) and got hit.

In short, the long hourly candle tail = dip was very aggressively bought.

In my last post Stock Market: Sector Rotation, i said that there's so much cash out there that every dip would get bought quickly. And i just didn't expect i see this confirmed the next 2 days (today).

Indeed, SPY was in fact green yesterday, reinforcing that it's only tech / growth stocks that doing most of the retracement. Or money rotation from techs / growth to cyclicals / value stocks.

(Click chart to enlarge)

Today, as i'm writing this (1pm, 24 Feb 2021), QQQ prices tested that 317 level, and the hourly candles never closed below it.

I believe this rotation is mostly complete, for now. In other words, the market has more or less finished pricing in the effect of the rising TNX on tech / growth stocks for now.

I have bought some techs on my watch list. The cyclicals / value have their runs. So expect the reversals of these 2 sector rotations. Of course, this may probably won't happen smoothly or perfectly. You expect that, don't you?

As bullish as i have been since the low last year, i haven't been as bullish as the market, which is close to extreme (in 1 post in May 2020, i said "you have to be crazily bullish on QQQ", although SOXX's rally  is even crazier). You know i always listen to what the market is telling us (instead of having my own idea what the market should behave). Right now, the market is telling me that despite how stretched i think the market is, i should be even more bullish than i have been. I'm cautious by nature, but the market has no such issue. I see nothing untoward in the market short term so that we don't have a broad sell off in all sectors.

Sector Rotation is a very good way for the market to keep on going up so that not all stocks are overpriced at the same time.