Flash Crash 💥

Well, Sort of..

Folks:

I wasn’t planning on being at my desk today BUT given the nightly events in S&P500 emini, I will be trading first couple of hours. I also wanted to share a quick post with subscribers, what I am thinking, watching and my levels.

A lot of people who went home leveraged long on Wednesday are now waking up to the smell of napalm on a shortened Friday market session, set to open at quite a steep Black Friday discount.

There are half a dozen theories floating around on the internet, trying to explain what just caused a 3% slide on Thanksgiving night. Here’s the main ones:

1. Liquidity or lack thereof. New options products on $VIX $SPX not helping the cause either.

2. South African Coronavirus variant

3. Powell renomination and Earlier than expected FED taper

4. Chinese stocks potential delisting on the US exchanges

Those in the bullish camp, their main arguement to buy this dip is that year end seasonality favors markets zooming higher over the next few weeks (which may be true but I listed some caveats below).

That may all be true. But here’s my take and what am watching this morning:

1. Overnight sell took out both 4680 and 4650. These were major-major supports. Now balancing below recent FOMC lows of 4635.

2. First impulse move by the market may be profit taking by speculative shorts who now wake up to a surprise windfall.

3. This will be balanced through selling by surprised (rather shocked) weak hands who recently joined this rally and may have bought several high performance stocks at their recent lofty peaks.

4. IMO, the KEY levels to watch (for absorption) will be 4634-4644 this session.

5. I think there may be more downside , unless we take out 4634 early on in the morning and close above 4644.

6. If a) the auction stalls at 4634, or b) never even gets there, I believe the market may exhibit a tendency to revisit the overnight lows around 4597, break it and trade 4550 shortly thereafter.

7. I will be surprised 😯 if we take out 4644 today which sets us back trekking all the way to 4700.

Folks like to come up with all sort of reasons why the market moved after the fact, but I do think this market got quite one sided and ended up releasing some steam.

Personally, I also think this has caused an unknown orderflow event and I do think there’s more downside to this market (again as long as we remain below 4634-4644).

S&P500 emini traded 4620 at time of this newsletter. And is now carving out a balance between 4600-4625.

Buckle up AND stay safe. Make sure you hit the subscribe button below to receive my emails the moment they are published.

~ Tic Toc

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