Short Shorts

Of all the phenomenal market moves of the last few days, none is more prominent than that of the Chinese stock Index, the China A50. Check this one out. …

China index

This is even more accentuated by the fact that most of the other global stock indices have been pretty flat, and the main moves has been restricted to individual tickers.

According to an analysis from ING this morning, the People’s Bank of China is quite likely to put their printing presses on hold when they meet on August 4. …

China more loans point to recovery article.

So less brrrrrr from China. According to the analysis anyway, the Chinese central bank is not interested in creating asset bubbles in the stocks and real estate market … right.

We’ve definitely seen a few asset bubbles recently. I think the one in Tesla stock will be studied for years to come. At the moment, short interest on TSLA is nearing a record $20 billion. Ever the troll, Elon Musk, has now added a pair of red short shorts to the Tesla shop.

Red shorts

Mockery teasing is all fun and games, but you have to imagine that some of those red shorts will likely be liquidated at some point, possibly causing a short squeeze and sending the stock price to even more ridiculous levels.

Of course we know the culprits here are overzealous Robinhood traders, but how could things get this out of whack?

This is something that the ever brilliant Mohamed El-Erian explained in a Bloomberg interview this morning by making a distinction between relative value and absolute value.

Relatively speaking, tech stocks look a lot better than most sectors right now, as they’re less affected by the pandemic and have momentum. This is a dynamic that can last for quite a while until for one reason or other, the market suddenly switches focus to absolute values.

Is this Altseason?

Well, judging by today’s action, I’d say no. A lot of the marvelous gains of the last few days have already been erased. The dogecoin TikTok pump and dump is already well into the dump, so maybe we’ll call this “altweek.”

Of course, there are many projects that still have promise and lots of money available for investments. However, the digital asset space is plagued with a lack of metrics to measure absolute value and instead must defer to relative value, or more often … momentum, which is what got us to the situation this week.

Daily gains of 2% and 3% quickly turned into daily gains of 5% and 7%, which in turn became 25% and more, a move that must be quickly reinforced with new money or reversed.

Last night, I managed to get out of some of the more risky alts before any of the big drops, but looking at things today, I’m feeling pretty optimistic and have now added positions in stellar, cardano, and tezos for the weekend.

We’ll see how it goes. Often times, these large pullbacks can be an excellent opportunity to get in on a massive trend without having to buy the top. Or, it could flop. Time will tell.

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