02-27-2020, 02:25 PM
** 26-Feb-2020 World View: Chain reaction
Words like "trapped" raise a red flag for me.
A couple of days ago, I heard an analyst on TV say something about
airline stocks falling because they were owned by hedge funds that had
to sell them off to cover shorts.
I favor the "chain reaction" theory of when a stock market panic
occurs. It happens when many traders simultaneously are forced to
sell to cover shorts or loans. When one trader is forced to sell, the
stock prices go down, resulting in a margin call for other traders,
creating a chain reaction and vicious cycle.
The Fed is prepared to flood the banks with liquidity when something
like that is happening, but if the chain reaction is international,
the the Fed won't be able to stop it.
Higgenbotham Wrote:> The reason this is working is because the book is thin, people are
> nervous, and big traders are trapped because there is no liquidity
> in the book. One big trader tonight drove the market down 8 points
> to get out of approximately 1000 lots. I covered a short right at
> the low of that move.
Words like "trapped" raise a red flag for me.
A couple of days ago, I heard an analyst on TV say something about
airline stocks falling because they were owned by hedge funds that had
to sell them off to cover shorts.
I favor the "chain reaction" theory of when a stock market panic
occurs. It happens when many traders simultaneously are forced to
sell to cover shorts or loans. When one trader is forced to sell, the
stock prices go down, resulting in a margin call for other traders,
creating a chain reaction and vicious cycle.
The Fed is prepared to flood the banks with liquidity when something
like that is happening, but if the chain reaction is international,
the the Fed won't be able to stop it.
