19th Jan 2021 - Zealous "Risk On" Market May be Ending in Stocks, Crypto and Currencies.
The recent trading headlines have been grabbed by GME due to it's insane price swings through the month. Starting around $18 it soared to a high around $520.
These moves are similar to the moves we seen in TSLA and SPCE this time last year. Huge gains with vertical charts on small timeframes.
In the crypto market a similar style of move has happened in DOGE.
Although entirely different markets. With different fundamentals and different types of market participants, both of these moves come in the exact same style (In a charting sense). A long flat period and then the move up in three main moves. A hop, skip and a jump.
After completing these three moves there has been a fast correction (Crash). In both cases, the fall stops around the high of the swing up labelled "2".
These are sensational moves and a true testament to the insightfulness of Jean-Paul Rodrigue's "Phases of an economic bubble" .
Both charts show the long "Stealth" phase. The first moves up are the "Take off" and "Bear trap" portions. Then the hysteria starts as we transition into the "Public" part of the climb. Then when price falls the move down is faster than the move up was (Which is always the shocking part for most people).
It's so interesting to see these forming over such short periods of time. Usually these take a long time to happen. This type of move is more commonly seen on weekly charts, not 15 minute ones. Here's an example of a longer term one. It has all the same features.
This is Blackberry. During their early domination of the smart phone market. The first troubles in 2008 and then the crush and re-crush in the "Despair" part.
Blackberry (BB) right now is a very interesting stock in my opinion. We might have went through a long "Stealth" phase on this and there might be a bull market due for this stock. There's been one move up already. I'll be ready to get on the next parts of this if it's a "Hop, skip and jump". $500 is a possible price target.
The Meme Market
But what of this strangeness? Since around 2018, and very obviously since 2020 the occurrence of rare things in the market have become more and more common. Investors expectations of the markets have risen along with prices. We're in market conditions that seem like a caricature of a real market.
I've noticed a tone of the average investor (Subconsciously) being more inclined to gamble in the markets over the last years than they had in years gone by. Through 2009 - 2017 the market virtually never had a 10% down move, but people were less bullish then than they are now, and now things are wild.
The idea of taking what used to be classed as excessive risk is becoming more socially acceptable. People are making bad decisions and being rewarded for them. Creating a dangerous mindset. People are betting a lot of money on things they scarcely understand.
An example of this is how bullish some excitable investors were on GME when it opened at a gap up to $500. Heading into this the short interest on GME was over 100%. Buying under these conditions is risky. Price is coming down. It's a matter of when and if it goes up first, it might be too fast for you to take profit.
People today are so much more willing to take risk on than they were in 2017. The market is perceived to be less risky. I think it's much more risky.
The Upward Trajectory of Volatility
Heading into 2018 new records were set for low volatility in the markets. The indices were always going up. They did not do anything dramatic, they were just slowly grinding on up. This was a golden time for buying and holding. The risk was tiny and reward was steady. But a 20% drop in 2018 brought that to an end.
Volatility is mean reverting. This means when we have seen record lows in volatility once this is over we should expect to see volatility swinging into (Record?) highs? It's like a bungee jump. Fast one way and then fast the other. Then after a while settling back down to the average.
We're only two years into the upswing in volatility. It can keep expanding for some time yet. At least a few years. Maybe even for the whole decade of the 2020's. This brings with it the real threat of tail risk. We have fattening in both left and right tails and each of the drama swings we see is bigger than the last.
Are we in the "Jump" in indices?
Consider this S&P500 chart in light of what I've covered in this post. We'd have the potential for wild moves leading up to a big drop if the following conditions were true;
Jean-Paul Rodrigue's "Phases of an economic bubble" has validity in indices.
Volatility is mean reverting and we're in an upswing in volatility.
If these two things are true, what we should expect is after a period of the market catapulting higher and higher. moving faster and faster as it completes short squeezes but when this transitions into the downwards period we might see the worst market conditions of our lifetime.
Blackberry would only grow only if something new is happening