US markets fell off their perch overnight with the DOW, SP500, and Nasdaq closing 2 – 2.5% lower. Traders got a wake-up call that many stocks are being bought up way past fair value on the back of speculating. Last year we saw the rise of inexperienced traders hitting the market taking advice from social media. This is seeing too much buying in some areas of the market. What happened with GameStop just brings that to light. Also, the hedge funds that went short will likely sell shares in other stocks to cover their shorts on GameStop. This is a typical short squeeze, we have seen similar situations play out in the market. There is no question that this could become a correction in the market (10% from the recent high), given how much markets have gone up since Nov. Just remember though, the reasons the market rallied have not gone away, so the chances of this being the big one are very slim.
The sell-down was also despite better-than-expected earnings results. The Fed confirmed their accommodative stance overnight, giving investors reinsurance that rates will stay low and asset purchasing will continue. Biden’s stimulus will also come into focus in the coming weeks/month.
All in all the fact that the noting has changed, I see this as a buying opportunity. But we need to get the fear selling out of the way first. It becomes a day by day proposition on timing.
The XJO is expected to fall on open this morning to around 6700. This follows a broad sell off in U.S markets and their negative futures this morning.
The expected pull back on open should put us near key support at roughly 6666, which the market has used as an inflection point when we were trading in the channel. There is also an uptrend line in play which comes in at roughly similar levels. These supports in conjunction with a fall in the AUD overnight will likely stem our bleeding – Hopefully, most of the damage will be done on open, and the U.S futures remain stable during our session.
US shares dropped substantially overnight, with US shares experiencing their worst one-day fall since October. Economic reporting was mostly positive, with durable goods orders higher than expected and with a larger than expected drawdown in oil inventories. Earnings reporting was less positive, with Apple, Tesla, and Facebook all falling after reporting their earnings results. We also saw the Federal Reserve keep their policy unchanged overnight, which should be considered as positive for share prices. Some in the market are suggesting that the selling could be down to hedge funds having to reduce equity holdings to meet margin calls. Healthcare stocks fared the worst overnight, while Basic Materials, Technology, and Telecom stocks also fell strongly. Oil & Gas stocks fared the best (though still fell) with a drawdown in US oil inventories.