Contrarian market making strategies work until they dont.
They keep raising prices on no buy side imbalance volume coming in. Wait until they get flooded to shares and they run a net long book again like 08.
I think the market makers are running a largely contrarian strategy lately.
I think there are some longs who are sitting on their hands not selling. I think so called hot money are also smart money because nobody will chase this. The average return of a good fund is some 20% per year. Most reached those targets. Nobody will risk it for a few more drops towards the end of the year.
So as you have less and less volume and the market keeps grinding higher, and these stubborn longs continue to party, wait until the music stops and large sell imbalances continue to occur over the longer term. Contrarian market making becomes a very unprofitable business to be in very soon. Those longs will also get twitchy with the sell button as their buy and hold strategy doesnt pan out as well as they were able to enjoy on the effortless ride up.
Gold and TSLA share a commonality as it relates to the S&P's own price action.
Lets start with Gold. The so called ultimate benefitor of the QE program. This was until it wasnt when QE/3 started. Lets get back to this.
TSLA was the best game in town. Rising day after day for almost an entire year. Until it started a decline and on its way to forming an equilateral triangle. All this in spite of all the QEing still going on.
So what do they have in common? They had momentum originally. Then they lost it. Regardless of 'fundamentals'.
Pundants talk a good game about QE and ZIRP on the stock market. The fact is we've had these policies for 5 years and the stock market never reacted the way it did this year. It is all momentum.
Momentum come and go. Regardless of fundamentals. Regardless of QE. So, for the S&P, as it makes higher highs on lower and lower volume and inflows, trading on contrarian market making dynamics, watch out below. All bubbles will pop eventually.
Exactly. That actually is a market making strategy. There are academic papers on the topic. Its all psychology.
In market making, a strategy is to raise the price when there is more sell side imbalance over a period of time.
A lot of modern market making algos have incorporated similar strategies in their trading behavior.
In this market, you have a bunch of longs who purchased at the lows earlier, pumping stocks. Talking it up as the best game in town. Then there are the neutrals they want to lure in, who are not stupid to the idea that they should not and will not chase stocks at all time highs. So they sit happily on the sideline. In cash.
Why chase a market on the long side with limited upside potential. The risk adjusted returns are no longer there. With each passing day, those holding long positions risk further tail risks.
Without so called "meaningful pullbacks", you leave out a lot of other potential longs out of the game, that would have otherwise set a stronger base of support for a secular bull market. When prices rise this dramatically without even a small pullback, the prices are supported by a limited group. This makes any exiting of positions much more dramatic to the downside than if names are populated with lots of longs accumulated from healthy pullbacks.
Classic DCB. Stay away from it or close longs near close. Slew of policy data this weekend.
me too. I went long last night and just added now. I am around 10 contracts in. Put stops in below 1725. looking at aapl earnings jackpot here.
noob traders need to learn from the best how its done.
I went long 5 more contracts of ES to average down a bit at around 1757. Preparing for aapl earnings jackpot.
market only goes up. you noobs need to learn from the profs how its done.
No I doubt it. Did you notice the markets lately?
It doesnt matter at all what happens.
Thats the truth. Good earnings. Bad earnings. No earnings. Continued losses. Whatever brotha -- BUY BUY BUY. It will go up.
Look around you. All the companies who reported little to no earnings or even losses gapped up.
AAPL is gapping up too. You watch and learn.
I will buy 20 calls slightly OTM at the close and also i am already long ES futures (S&P 500).
We all agree a gap is likely in either direction. Doubt it stays flat.
So what is it then?
Gap UP or DOWN? Or you think its FLAT?
I bet gap UP. I am buying calls at the close and I am now long S&P futures.
i was long before. Sold ES when it hit 1730.
Now I am long again at 1760. I put stops below 1725 just in case.
the market only knows how to go up so just going for the ride.
wait till apple earnings. they will gap 10%. its the only thing it knows how to do in this market.
I went long the ES contracts too. Long @ 1760. Put stops1725. See what happens. They will scam this thing big time. no matter what happens apple will probably be up 10% after earnings. It doesnt matter what happens. Its just up. Its the only thing it knows.
I'm long too. Just went long 5 contracts of $ES around 1760.
I sold earlier at 1730 but you cant fight them join them so I am going long again. See what happens.
I put stops below 1725 ES.