Imagine You buy a stock or business, that You think was undervalued based on the "circumstances" and that you think has great value. You bought this at 1$, during 2020 November alongside with the oil rally.
Nobody knows the price. Everyone has a price target... Imagine my price target was 7$ - based on the previous highs. Chances are everyone will look at it the same way and adjust the price based on some context.
Under price momentum, there was buyers and sellers and stock rise to 3$..4$..5$ etc... If everyone use 7$ for guidance - most likely everyone be selling their shares at 5$.
If I wanted you to sell higher I would shout 10$. If I wanted you to sell lower I would shout 0.50$.
People would adjust their targets and nobody knows exactly how much something is worth. That's what the institutions do with their public price targets. It works like a poker game.
The closer price got to 5$ -> more risk you took by buying or holding it.
If I had a ton of bitcoins, I would shout 200k price. and sell it when it's strong. etc. Then cause panic - to get cheaper prices. #101
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Big institutions announcing 100$ crude oil just gives you information or "tells", where they want the price to be? or where their positions might be. etc. It shouldnt be taken at face value, but it gives you information (where there was vacuum of information).
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Market consensus can be changing over time... ie; the 7$ changes to 10$, etc.
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Cycle theory. People buy things with room of safety, where driving force works as hedge and tail wind. Chances are everything is doing it the same (because it make sense). When You buy RIG at 1$, oil at 35$ rally works as a driver and room of safety. The higher it goes on the cycle, less room is left. Whilst sentiment might be the highest, when most people become enthusiastic etc. At some point there would be no buyers higher. When you bought RIOT at sub 3$, the room of safety and driving force was BTC rally post 16k. When it (BTC) reach 30k+ (before ETF) chances are, there do be no buyers higher. Because, why would they? It also proves that markets are somewhat intelligent. for most part? ie Big money markets. Stocks rally a lot due on expectations and sentiment. One day everyone be hype about RIOT exploding to 30$, just to see the narrative change the other day (the BTC market top at 30k). There is no room for RIG to rise, when risk-reward is poor.
Room of safety can either be in the price range or in the time window perspective?
When everyone is pessimistic it's actually a good driver. And when everyone is enthuastic or euphoric, chances are there are less buyers left above. Stocks are hard but nothing is fully unpredictable.
Buying stocks "low" has better odds, "if" the drivers are there. You might not see the full picture yet, but trust the work of invisible hand or market forces?
Game theory means what other people are supposed to do (are capped). Meta-game means playing a game where everyone know the rules. You could predict BTC effect because it was liquid and it wouldn't be worth to sit out, because of alpha.
Odds change as the cycle change.
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What's cool about the markets. Everything is risky till everyone just accepts the idea of a common price target. I dont know how to post images on comments? but Tom Lee just gave a IWM, small cap price target of +50% this year. When everyone just accepts it, stocks rally. Stocks are risky due to lack of liquidity. until all markets decides it's time. BTC leads the way for small caps, but stocks still need to follow earning fundamentals. When everyone just accepts the narrative of 150k it goes, lol. as long as technical potential supports it (and fundamental drivers ofc).
On the same note, RIG was risky at 1-2$...3$... till the price was 5$. Narratives change and markets accept the new normal. RIOT 80$ is impossible, till it becomes possible.
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When some fundamental drivers change, two things happen. There are less people wanting to buy, since room of safety is no longer there? And sellers become nervous and want out. You get a one-two punch. No demand and large supply wanting to exit. It can work both directions. When stocks are low and drivers change; nobody wants to sell anymore. And pile of demand storms the stock or asset. Markets work like a pendulum, where they rarely spend time at middle. Often you can predict the "move" when something was suppose to be rally or falling. weakness leads to other extreme.
Stock price action is a cyclical phenomenon? Fundamentals of FAANG didn't change that much in 2021 but price went -50%.
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In 2023, VIX averages were high. Everyone was bearish. If fundamentals were okay, it doesn't make sense, therefor it was almost a risk free trade (it depends how u measure risk). VIX 200dma was trending down lol and AI development is at the very beginning of it's life cycle. Where the VIX worked as a longterm driving force. (High VIX works as a support for stocks).
When EVERYONE (or most of managers) are bullish BTC (else it wouldnt be rallying), when it rallies past 70k for the 1st time on high volume, it means there are also lot of sellers. People expect 120k or 150k on STRONG DEMAND, but forgets that these who were bullish - was already buying heavy all the way. When thing go higher - there is actually less demand left. Or liquidity risk to buy higher, bad risk-reward in short term due to technicals (remember people judge entries based on room of safety). Bull rally moves suck all the demand and there might not be buyers left above.
Well explained except your theory not applicable to disrupters like NVDA, who can predict when it will stop climbing? Currently RIG is quite attractive given the very unstable geopolitical conditions.
citsvar
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@chartsosci, Hi, when broad market matures, energy sector outperforms. Energy sector is now a good hedge for smart money; hence- demand
citsvar
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@chartsosci, if you want to sell at 700$, u would shout high numbers like 1000$ And vice versa
friendlyDog15536
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Please, teach me your knowledge, master I've read all your posts and was stunned how accurate they were Was that experience orskill?
citsvar
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@friendlyDog15536, Ask holeyprof, he's a pro. Im a beginner compared to him honestly
friendlyDog15536
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@citsvar, Ok, I will subscribe to his profile. btw, what do you think about bitcoin, I think it will go down, at 64-62k
citsvar
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@friendlyDog15536, you can read the books i sent you instead of wasting time trolling on burner accs lol. Are you enjoying the market weakness, because it looks like it lol. I must ve hit on the nerve.
friendlyDog15536
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@citsvar, Perhaps you misunderstood me. I tried to be respectful and that's my main acc xd. Why not short when there are opportunities?