Coincidental Moves In The Stock Market

Any coincidence that $SPY nearly reached highs from its gap down back when the pandemic selloff began? February 24th kicked off the market selloff from ‘Ms. Corona’. A month later on March 23rd, the market put in its bottom and we nearly erased all losses from the deep selling.

Fast-forward through disastrous economy closing numbers; yet higher market prices, and we have reached the point of where it all began. Is there any coincidence that we’re headed back south once again? Is there any coincidence that COVID-19 cases are coming back after a brief pause?

All anyone needed to do, was look at the state of the economy, then look at the state of the market. What was the run pumped up on, hope? That’s a bit far-fetched, don’t you think?

The two are obviously not correlated. The economy was/is sinking and the markets are/were printing higher. Is the euphoria of a “back in business” falling to the wayside?

Where was the demand coming from? From the unemployed desperately buying CNBC’s hot stock of the day with their newly funded accounts.

What happens when the capital has shifted from the novice accounts to the accounts of more astute traders/investors? Will the floor completely drop out and the market find itself looking at lows once again? By yesterday’s bloodbath, it’s quite possibly the case.

The false perception of a company’s value was wiped out from panic selling once COVID-19 began. A company’s fundamentals didn’t change, it was the perception from fear that came to light.

What does this tell us as traders? In short, don’t believe the hype.

With situations like the $LK cooking book fraud to the recent $NKLA running parabolic on zero revenue, you should question the driving force behind the markets as a whole. There’s also a large group of traders that murder the backside of highly pumped-up junk penny stock companies on a daily basis.; it’s a rinse and repeat process.

With this known reality of how markets truly move, build a solid case for momentum trades. When the market begins in a particular direction, despite the reasoning or sheer lack of substance, you’re not trading the company itself, you’re trading the perception of market participants in that particular company.

Let’s repeat that, traders are trading others psychology of an underlying security, not the company itself. That is why companies like $NKLA run 166% on hype. The company itself, clearly wasn’t worth the 166% run in one trading session, it was the FOMO traders that continued pushing it higher.

Point of all this, the markets are a different beast than they were a decade ago. Heck, they’re even different than they were last year. Rational thinking behind moves in the market are a waste of time. Today, it’s about the momentum that’s underway and positioning yourself to take advantage of the clear trend; be that intra-day/weekly/monthly/etc. The underlying security has a role in the move, but the perception of that security is the clear driver. Market perception is everything – at the end of the day, it really doesn’t matter if a price move makes any sense to you, if the market perceives price of a stock to be “X”, then that’s what the price will be at that particular moment in time.

Don’t fight the market, Flow with the Street.

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