ATFXThe confrontation between retail investors and Wall Street tycoons has caused a significant overnight drop in US stocks

There are two different analytical approaches to the overnight sharp drop in US stocks.
One view is that the decline of US stocks is due to the two major "monster stocks"——GameStopandAMC——Their irrational doubling has led to significant losses for large short selling funds, which have been forced to sell to compensate for insufficient liquiditystock market indexHeavyweight stocks (such as Amazon, Google, Apple, etc.) ultimately experienced an overnight sharp drop in US stocks. It is obvious that mainstream media are more interested in the latter viewpoint because it is stimulating and eye-catching enough, with a sense of heroism of "individual investors flipping through institutions", naturally resulting in more articles to be reported. As a member of the US stock market trading, I cannot avoid vulgarity. Next, I will introduce the background of this US stock market opening year drama.
The most important thing isGameStop（GME）The stock price trend in the past month:


1month6Day,GMEThe stock price is still mediocre18USD, but after three weeks, the stock price soared directly to347USD, up by up to1927.77%Almost flipped over20And the majority of the increase was achieved in the past week. So, this is calledGameStopDoes the listed company have unparalleled performance support? Or is there a broad market prospect like Tesla? Unfortunately, the answer is: none.2019In, the company suffered a loss6.73USD100mn2020Annual loss4.709From a financial reporting perspective, this company is indeed lacking in terms of billions of dollars. In terms of market prospects, the gaming industry has indeed won the hearts of a new generation of young people, but it has not been able to cause stock prices to rise in the foreseeable period of time20Major changes in times. By the way,GameStopThe Chinese translation of 'Game Station' is as follows:


As we mentioned earlier, the surge in game stations is a special phenomenon of "retail investors turning over institutions". In the social media field of the United States, there is a highly well-known forum calledRedditHe owns300More than ten thousand registered members, and I often browse the content of this website. It is not a forum specifically designed for financial investment, but it still gathers a group of ambitious people who love trading. In a named“Wallstreetbets”The group of (Wall Street Bets) gathered a large number of passionate and rebellious young traders (as shown in the figure below).


From the group name, it can be seen that they see Wall Street as their opponent and take defeating Wall Street as their responsibility. They seem not interested in the profits and losses after buying a stock, but they are flocking to major losses from the large Wall Street hedge funds that are forcing them to short the stock. The method is also very direct, explaining the selection of a short selling stock on Wall Street, and then calling on everyone in the group to work together to buy until these Wall Street giants burst their positions and go bankrupt. Now it'sGameStopAfter thatAMC . From the latest post, it can be seen that the simple introduction is as follows: "Wall Street is using all its means to force us to sell stocks and leave. Don't give in to them. We are together, only we can succeed together!" In fact, they achieved a phased victory:Melvin Capital (Melvin Capital), lost in one month30Billion US dollars, and thenCitadel (Castle Capital) Financing27Billion US dollars, continuing to be heavily short, butGameStopThe stock price is still being wildly pushed up by retail investors,1month27Day, which is yesterday,Melvin CapitalChoose to end your short selling and acknowledge your losses.Melvin CapitalIt is the hedge fund with the most severe losses, and there are also other investment giants that have suffered huge losses in their capital struggles with retail investors, such as Citronitadel. When major Wall Street giants lack cash flow due to losses, they have to choose to sell some high-quality stocks in their asset pools in exchange for valuable capital "ammunition". What appears to the public is the eerie phenomenon of the three major stock indexes in the United States plummeting overnight, with high-quality stocks such as Google, Amazon, Tesla, etc. experiencing a significant improvement in performance, but their stock prices unexpectedly plummeting.

Did Wall Street really give up? Actually, there isn't. The passionate story is still unfolding,GameStopThe stock price is still at a high level, but Wall Street leaders have already made a statement about this. They believe that it is indeed surprising that the speculation of retail investors has intensified. Investors must be alert. When the stock market reaches a record high, this may be a fatal prelude to the bursting of the foam! It seems that Wall Street wants to use its public opinion advantage to call on potential investors to enter and short these "monster stocks".
After the story is told, return to reality. Another way to analyze the overnight sharp drop in US stocks is to rationalize the trend of US stocks based on the Federal Reserve's monetary policy and the US economic cycle, as discussed in this article; Of course, both viewpoints make sense, but when we return to rationality, we still need to find ideas and wisdom for trading US stocks from the second viewpoint. The trends of the three major stock indices exhibit extremely high resonance, and understanding the rise and fall principles of one of them can draw inferences. Therefore, this article mainly focuses on the NASDAQ100Taking the index as an example to explain, the factors and directions of changes in the remaining two indices are generally the same.


chart1Daily trend chart of NASDAQ
Short term bearish, downward band（13615~Market price continuation, first target position13177Already touched, waiting for the second target position12742；
The midline is bullish, with a clear upward trend in recent months, and a downward trend will only hit the marketgoldThere are many good opportunities for pit layout, but we need to wait until the support level is determined.
Long term bearish, as this decline was caused by the Federal Reserve's interest rate resolution, but the resolution did not explicitly mention extreme unfavorable words such as "interest rate hikes" and "table tightening". It was only Federal Reserve Chairman Powell who revealed a bit of pessimistic expectations, that is, his speech: "The economy still has a long way to go to achieve employment and inflation goals, and it may take some time to make substantial progress, This has led to such a significant decline in the stock market. From this, it can be seen that the confidence of US stock investors is not stable, and they will sell their stocks to the audience due to certain factors. The worse news is that monetary easing and monetary tightening always alternate,2020The interest rate that was lowered and the currency that was over issued due to the COVID-19 in will reverse after the epidemic subsides. If the vaccination rate of Pfizer in the United States is indeed as stated by the new US President Biden“100day1If 100 million people are vaccinated, the turning point of the epidemic will appear in the second quarter. At that time, as various industries enter the recovery channel, the currency that was oversold in the early stage will erupt in huge destructive power. The most affected economic indicator should be the price indexCPIThere may be an uncontrolled increase. At that time, the Federal Reserve will have to quickly raise interest rates and significantly reduce its balance sheet in order to curb hyperinflation. Imagine, on the one hand, investors in US stocks with severe lack of confidence, and on the other hand, the Federal Reserve tightening monetary policy will inevitably lead to a long-term downward trend in US stocks.


The above image shows the United StatesM2The growth rate represents the overall growth of the US dollar worldwide. It can be seen that after the emergence of the COVID-19,M2The growth rate has shown rapid growth and has reached a record high so far26.49% . Objectively speaking, the growth rate cannot always be at a very high level, and after a significant increase, there will inevitably be an equally significant decline.M2The decline in growth rate means that the total amount of dollars circulating in the market decreases, and the cash flow of enterprises and residents decreases. The stock market will naturally "sink to the bottom", which is also why the US stock market2021The biggest risk point faced by the year.

Disclaimer:
1The above analysis is based onATFXSenior AnalystDeanProvide.
2The above analysis only represents the analyst's perspective. There are risks in the foreign exchange market and investment needs to be cautious.
3、ATFXWe will not be responsible for any profit or loss that may arise from the direct or indirect use or reliance on this information.
4Part of the content comes from publicly available online information.