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Markets Could Collapse Into The Holidays

quoth the raven's Photo
by quoth the raven
Tuesday, Nov 23, 2021 - 12:12

Submitted by QTR's Fringe Finance

Most traders have a tendency to pay little attention to the market, put themselves on autopilot and hope for the best heading from Thanksgiving into the end of the year. This year, I’m getting a feeling that this strategy might not work well for what could be looming in December.

The short-lived rally yesterday on news of Jerome Powell being re-nominated as Fed Chair was a nice reminder that the market doesn’t like surprises, changes, or volatility of any kind. After all, the market rallied on the selection of the “hawkish” choice, between Powell and Lael Brainerd.

While Brainerd was widely seen as the more dovish of the two potential Fed chairs, the market still celebrated the fact that there would be no change at the position by rallying early in the session, as soon as the news broke, yesterday. Then, reality kicked in and the market swung sharply lower during mid-day session, before doing the same at the cash close.

All three indexes finished the day far off their highs. Tech stocks got the worst of it, with the Nasdaq Composite dropping more than 1%.

I have already detailed several reasons why I believe the NASDAQ could be on the verge of a collapse without warning here: Why We Could Be Staring Down The Barrel of A Catastrophic NASDAQ Crash And Not Even Know It

Now, I want to add to those reasons.

I got this feeling yesterday, while it was taking place, that the sharp intraday reversal needed to be paid attention to.

The signs that I think do not bode well for the market heading into the holidays are:

  1. The market’s realization that a taper is now definitely on its way.

  2. A rotation from shitty tech names into value.

The Taper Is Definitely On Its Way

The jitters yesterday, in my opinion, were catalyzed by the realization that even though there will be no change at the Fed chair position, Jerome Powell is going to try to see through his plan of tapering and, upon re-nomination, has very little holding him back from going rogue. By that I mean there will be little stopping Powell from taking extraordinary measures to try to curb inflation if he wants and/or needs to.

This man is officially in the driver’s seat now:

“Why worry about the taper,” you’ll ask. “It’ll never last!”

You might be right - but that isn’t going to change the market’s expectation of it working over the next couple months.

I’ll be the first person to joke that continued QE isn’t going to work. Me and my kind often argue that any taper will be short-lived before it stirs up market volatility and elected officials eventually give in and resort back to more quantitative easing. However, this won’t matter in the short term because...  (READ FULL ARTICLE HERE)

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