We have all seen the madness of the markets and crowds this week, WSB heroes are killing off hedgies with no remorse. The last time we saw similar price action to today in tech stocks was June, and more recently September. These instances followed a well defined sequence.
✅ A large selloff in 30Y and 10Y bonds, followed by a bottom and recovery
✅ Massive FAANMG blocks hitting the top signaling that the "froth" is being created so that big funds can exit at the top
✅ A capitulation zone where after trending steadily up a parabolic price finisher creates a top
✅ A topping candlestick pattern, such as a Hanging man
✅ A seasonality profile top heading into an FOMC statement
Let's go over these criteria!
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💥 Bond selloff and recovery
There was a major bond selloff early in the year, trigging a big rally in stocks for the first 2-3 weeks. We have hit major supports and recovered. Eventually this "rate shock" propagates to the markets. There was a similar blowoff top in June in stocks, also triggered by a bond selloff and recover.
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💥 FAANMG dark pool blocks
We had unprecedented dark pool blocks leading into late August and leading into MSFT earnings this week. Dark pools use their power to lift the market in a final phase of a long so that they can exit their REAL positions that are much larger. It takes time for a capital fund to dump $50 billion in FAAANG.
S Waves, as I call them, have become more and more prominent in recent years. We see them on all time frames, and some are bigger than others.
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💥 Hanging man top
We had a very important candle at the top of a potential capitulation zone back in September. Breaking the low first before the high is usually the trigger to get in short. This time around is a little more tricky, as we did not open the following day at the low (tech earnings and FOMC still outstanding).
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💥 Seasonality trade support
Post election year seasonality shows that there is some kind of top (on average) in late January or early February. This is followed by a deep selloff into the next FOMC statement.
About 75-80% of FOMCs are "bought into". And of those a good amount are actually "sell the news" events.
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💥 VIX coil
VIX breakout from yet another wedge pattern
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Put/Call ratio closed yesterday at multi-year lows