It was yet another Manic Monday in the ,markets. The US Stock markets have erased all the gains of this year. It may sound quite simple, but in a span of 30-35 days since the start of 2018, the market has appreciated around 8% from last year end. And that entire rally is been wiped out by two days of trading. Since January 2017, the market has been in a huge rally we fondly called 'Donald Trump Rally', which have taken the markets almost increased by 35%. It will be interesting to see how many days it would take to erase that much of market move. May be we can find out soon!
One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute. William Feather
I have to admit that I feel vindicated with my prediction which was made in my last post - By Owning the Stock Market Rally, Trump sets himself up for the Blame for the Crash. But not in my wildest dream I thought it will happen this soon! Before the flash crash of yesterday, the White House is reported to have been concerned with Friday's Market Crash. But they may have not been expecting the kind of crash we saw on Monday. There are vivid speculations of whether Central Banks intervened in the end to stop the crash at the lows of 23,964 for Dow Jones. The market rallied back briefly before plunging to second time to close at 24,373. The volumes building up towards the end of trade suggest that we can expect an equally interesting day today!
The Velocity of Market Crash Surpises Everyone
The most surprising fact about the market crash was simply the speed at which it happened. The fall at the start was triggered by humans, but pretty soon the machines which do the majority of volume trading took over and that caused the flash crash. This has been something many stock market pundits like Jim Rickaards, David Stockman, Gerald Celente etc. highlighted as the problem. The majority of stock markets trading is done by machines, and when the sentiments reverses they all will start selling in a jiffy! That's what causes all these flash crashes.
If stock market experts were so expert, they would be buying stock, not selling advice. Norman Ralph Augustine
This technically cannot be called a Correction as explained correctly by Wolf Ritcher from Wolfstreet.com. But it had reintroduced back a bit of sense into the markets; in two trading days people have forgotten the mantra which was prevailing since last quarter of 2017 - 'You Cannot Lose Money in this Market'. That will continue a day or two and then everyone will back to merry days.
The hedge funds which is sitting with tons of cash given to them for free by Federal Reserve would enter pretty soon and dip buying will start. The Market will not crash until something happens to these hedge funds and for that we should take a good look at the Bond Markets. The Bond yields have been rising for some time and it was a matter of time stock markets realizes this and react. The higher wage growth in the job report appears to be the trigger this time around. Yesterday after threatening to touch 3% yield the US 10Y Treasury yield crashed 200 basis points to end at 2.694%. Instead of going in opposite direction, the yield and stock markets are going in same direction for some time.
In the other area there is the Crypto Currency Crash which is going without any stopping. Bitcoin has already crashed to $6,160.23 from the highs of $19,458. That also could be destroying a lot of money and it is worth to remember that in that non stop rally phase a lot of Hedge Funds were getting into Bitcoin in frantic pace. Now that means Hedge Funds are getting hurt in all three fronts of the bubbles - Bonds, Stocks and the Cryptos. That could set up a interesting phase where they themselves need to decide where they will enter as the dip buyers. The initial focus will be on stocks as it has more visibility to public but they couldn't take their eyes off the bonds.
Whether the entire economy will crash will depend on the ability for these fund managers to enter in as the dip buyers. In that backdrop we cannot over look the QE Unwind the FED is doing! That also will have a huge effect on the impending crash. The dip buyers could stop the market crash but the last two days have already shown the scary picture of what could happen on the downside. In the end all the dip buyers could get killed, the only thing to know is how long that process is going to take?
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