Oh, the madness that is 2021! Never in my life did I think I would see a bunch of internet nerds take down hedge funds and brokerages… just for the lols. But here we are; Robinhood is basically dead in the water, Melvin Capital has offered a job to u/DeepFuckingValue (who made $46 million on GameStop since October 2020), Wall Street losses on GameStop and other heavily shorted stocks are tracking well over $70 billion and there is no sign at all that the Redditors have any intention of stopping. It boggles the mind!
I think the major thing really is that the motivation behind what is happening is deeply personal for many of the so-called ‘meme traders’. Many of them were old enough to understand what was happening during the 2008/09 global financial crisis, but too young to be able to do anything about it. Now, a decade later, they are collectively focused on ‘making Wall Street pay’ for the excessive greed and complacency that led to the 2008/09 financial crisis, which by the look of things hadn’t changed Wall Street’s behaviour one bit. Let’s face it, the only way GameStop short positions reached over 160% of the total shares in issue, is that larger institutions pushed the risk further than it ought to be pushed. Now these same institutions are on the wrong end of a trade that the ‘everyday-man-on-the-street’ is going to keep pushing until they break something. The mood on the Wall Street Bets Reddit is electric and motivated and as things stand now, there is no plan whatsoever to stop or slow down.
It is going to be an interesting week. Buckle up!
Offshore trade ideas
In truth, I have no idea. GameStop could fall right back down to sub-$20.00, or it could hit $1000.00 and daddy Elon will stick a GME sticker on a Falcon 9 and send it to space. Honestly, I think the probability of the second scenario is actually rather high. As funny and crazy and exciting as that sounds, the best advice anyone can give here is to stay far, far away from this action. Yes, there is a major battle happening here, but think about it rationally. What happens of the diamond handed meme traders just hold like they plan? What happens if more supporters around the world start buying like mad and truly squeezes the shorts to the point where brokerages and banks start to fall over? This is massive tail-risk, to the entire market. Gut feel; memers are gonna meme and they will push GME to highs never thought possible, just for the lols. Robinhood will fall over, Citadel will be next. Channeling ‘ol Buffett here… we’re about to see who has been swimming naked.
VIX sell signal
This is something that I’ve been messing around with over the last few months. Markets have been a lot more volatile than normal for the last year now. I’ve been trying to formulate some sort of VIX based early warning signal that a selloff is imminent. Perhaps this is not the most reliable signal, although over the last 2 or so years it seems to have generated a signal very shortly before a major market selloff. Granted, those selloffs have not always lasted very long, but nonetheless the signals have been rather accurate. Last week (marked in red) another signal was generated. By the look of things, we are in for a very, very wild week.
Some of the rationale behind what could cause of selloff includes this GameStop madness. As larger shorts begin to brun, they will be forced to liquidate other positions to free up margin (or pay margin calls). We’re also seeing brokers, clearing houses and banks all increase margin requirements across the board… higher margins on all stocks means that those who are geared or a little stretched here near the all time high, well those people are going to get margin called and will be forced sellers (ironically, not of GME, but of everything else).
Just be careful. Be patient. Trade small.
The SPY broke a very short-term trend line (red), as well as generated a host of sell signals on both the MACD and Stochastic oscillators. The last lines of defense here (mind those puns) are the longer-term (blue) trend line and the 89 day moving average. Should those fail, we will very likely see the SPY test that 200 day moving average (green).
QQQ is still trading in the channel that it’s been in since the bottom of the COVID-crash. Should it break the channel (and the 89 day moving average), we could have a decent correction on our hands.
Dow Jones Transportation Index (DTX)
Looks like DTX is leading the pack of indices. DTX closed well outside of its channel and marginally below the 89 day moving average. Next support is the 200 day moving average around $1100.00. Momentum has turned solidaly bearish as well. This looks like a nice short actually.
Russell 2000 (IWM)
Small caps were the outperformers for a while… Alas! No more. IWM has broken the short-term trend line and is triggering sell signals on the momentum indicators. It looks like we have a clear short at a short trade down to either the 89 day moving average, or the longer-term trend line (blue).
Dollar Index (DXY)
I’ve been tracking the falling wedge on the DXY for a little while now. During the past week one of our traders in the community picked up the Inverse Head and Shoulders pattern. Overall, Dollar strength seems to be on the cards. The rationale around it is likely going to be ‘flight to safety’ given the extremely risky backdrop to markets at the moment.
I’m still looking at a weekly chart on the USDZAR (and probably will for a while still). Until that down trend is broken, there is no signal to trade here in my book. My gut is telling me that we’ll see proper weakness in the coming months. Maybe looking on shorter-term time frames could uncover some decent long trade setups?
As mentioned in the ‘which cryptocurrencies to buy in 2021‘ post, keep an eye on the previous all time high ($1420.00). I think buying this break out will prove to be wise.
Somehow, by hook or by crook, Gold is managing to hold on to the support level. Yes, very technically it closed below the support on Friday. Although, when things get a little risky, Gold tends to provide some nice tendies… I mean, Gold performs well. It needs to get above $1880.00 in order to really get going though.
iShares Silver Trust ETF (SLV)
If you think the memes stop at GameStop… try and buy some physical Silver coins in Canada. You won’t get any. Not online, not in a store… they are simply sold out. The meme traders from Wall Street bets have made it clear that they are coming for Silver as well, so let’s see how far they can push it.
For some context of what is possible, I’ve used a monthly chart. We see a few interesting things, first off that the largest single month rally over the last decade or so was about 29% in April 2011. Also, in the four months of September to December 2020, Silver rallied around 59%. That makes for a total 147% move in seven months. Remember, that was just by pure natural market forces… there were no memers pushing it and going around town buying all the physical coins they can get their hands on back then.
I have no idea what is going to happen here, but I think a long position might be worth it.
Brent Crude Oil
Oil is going nowhere slowly. It’s been in a rather tight range for a few weeks now. The longer-term target is still $60.00, but as mentioned over the last few weeks, a pullback to $52.50 will not be a surprise. For now though, no trade signal is present until / unless that range is broken.
Clean double top pattern and a trend line break, combined with a series of momentum based sell signals. Short target is $600.00.
Compagnie Financière Richemont (CFR)
This is the European listing of CFR. That short-term trend line (blue) has been broken. Short target here is $72.00.
South African trade ideas
Top 40 Index (ALSI)
That’s a nice and clear shooting star candle formation. First target around R1600.00. If it breaks below R1500.00, our index is going to be in real trouble. Maybe the GameStop ‘ed for these tech giants?
AngloGold Ashanti (ANG)
Thank you GameStop for bringing risk and fear to the market, for you will likely pump the gold price and the silver price and thus ANG might finally break free of resistance and head toward R440.00.
Harmony Gold Mining (HAR)
The same goes for HAR. Neither ANG nor HAR have made new lows, and both are trying to break out from under their longer-term moving averages. A little risk-off can go a long way.
This pennant formation has been tested and seems to be holding for now. Overall things are still looking good for EOH.
Blue Label Telecoms (BLU)
BLU has had a nice run. Maybe time to bank those longs? Watch out for a bearish break of this range. We could see it test R4.00 again. Likewise, a break out of the range toward the upside can probably be bought. Remember though that this stick is a small cap and not very liquid. Trade smaller than you normally would if you are going to trade BLU.
Coronation Fund Managers (CML)
CML has broken its resistance and managed to end the week on the highs. The question now really is; does that resistance now hold as a support while the market pulls back?
Joining HCA trading
HCA trading offers a number of different trading accounts to suit different types of traders. Our offshore trading accounts allow traders to buy shares, ETFs, CFDs and even fractional shares in the United States for only $2 a trade. Locally, we offer shares, ETFs and CFDs at good rates with robust and reliable trading platforms. All our trading, including CFDs, is done on a Direct Market Access basis and thus our clients are able to interact directly with the real equity market and not have to worry about excessive counterparty or liquidity risk. Our prime broker locally is a big four bank and offshore we make use of one of the largest non-bank prime brokers in the world. You can even trade GameStop of you want…
Local stockbroking rates
|Trading instrument||Brokerage rate||Margin rate||Minimum trade charge|
|JSE listed equities and ETFs||0.30%||100%||R150|
|CFDs on JSE listed equities||0.20%||10% – 25%||R50|
|SAFEX listed index futures (ALSI)||R20||6% – 8%||R20 per contract|
Offshore stockbroking rates
|Trading instrument||Brokerage rate||Margin rate||Minimum trade charge|
|U.S. listed equities and ETFs||USD 1 cents per share||100%||USD 2|
|Canada listed equities and ETFs||CAD 2 cents per share||100%||CAD 2|
|U.K. listed equities and ETFs||GBP 12 + 0.1%||100%||GBP 12|
|Germany listed equities and ETFs||0.20%||100%||EUR 8|
*Please note that these trade ideas form part of a larger weekly plan and the value of financial products can increase as well as decrease over time, depending on the value of the underlying securities and market conditions. The risk of loss arising from trading in Contracts for Difference can be substantial. You should carefully consider whether such investments are suitable for you in the light of your circumstances and financial resources.