If you want to describe the situation on the stock markets, you could say: there will probably be more sellers than buyers in the next few days and weeks! The reason for this is logical: investors have bought massive stocks in the years before, are in a sense “all in”, and humans become very nervous when the profits that have been built up over the years continue to melt away and can even become a loss. The human psyche, a stone-age legacy, wants to take the loot that was killed back to the safe cave. That’s why the wave of sales, especially on Wall Street, should not be over so quickly!
Venus vom Hohlefels, 35000 years old
Von Thilo Parg – Eigenes Werk, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=40890787
People with no idea of the markets made big profits. The game seemed so easy: whoever buys is right! The market now shows the unsuspecting that they have no idea – this is always the case in the long run! In fact, the financial markets are a shark basin, and when little fish get cocky and think they’re superstars, they get eaten. That is what we are currently experiencing.
But it also affects professional investors, as the Dax sentiment of Deutsche Börse shows . The professionals had thought: wow, a little flash crash, wonderful opportunity to buy – but they didn’t have on the note that a gigantic volume needs to be delevered after the increase in bond yields. So many professionals will have to pay money for their optimism this time.
If things are too easy for a long time, they suddenly tend to become very complicated. That is now the case. Basically, the right question now is: who has which leverage, who has which risk, where are the imbalances. The Flash crash on Monday was triggered by the most vulnerable link in the chain (VIX-Short speculations), but that was just the tip of the iceberg, the most blatant manifestation of a system running out of control. This system was a mass phenomenon: everyone is doing the same thing and seems to be getting right through success. This is the recurring systematics of bubbles, which then burst again and again according to a similar systematics!
About the Dax: The index has formed a raised floor at 12150 points on an X-Dax basis – let’s see if this is a stable floor at least in the short term:
(Click to enlarge the chart)
The odds are not so bad that the Dax can make some way up today. Next resistance in front of the chest is zone 12340/50, but only if the double top at 12645 could be overcome would this be a confirmation that the 12150 really is a stable double bottom!
It is going to become volatile again today, there are some signs (today!) of a weakening of the dollar (government shutdown), so we could see a counter-movement, which is not yet a turnaround..