My educated inexperienced analysis. Been at this just over 3 months.

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The market began in a descending wedge when Powell spoke about aggressively combating inflation. Since then any rally has been on false hopes of a soft landing that would be crushed by data supporting the likelihood of us entering a recession. Some traders attempted to make sense of the rallies by saying the Feds are either bluffing, not in a position to do it and then up till this week, the last hope of a .5 interest rate hike. That is if you believed they were bluffing, or that they didn’t have the tools to combat inflation, i.e strong employment, the highest competitive wage market in my young life, and the trillions injected into the economy.

If you look at SPY (which mirrors or inverses all the huge stocks), you’ll see that the market was respecting the 30min 50MA since before Powell spoke. Ever since then it only began respecting the 30min 50MA when it would rally for a false breakout. If you look at the last rally before we confirmed with more data that we will be seeing a .75 rate hike, we dropped back under that 30min 50MA in a single day, not only did we drop under the 30min 50MA but we also broke back into the edge we were out of for the largest decline the market has seen in a single day since the pandemic in 2020. In addition to this, every single one of those rallies were after dividends payouts. I theorize that the larger money are rolling their dividends payouts into shares at a discounted rate due to tax laws. They are then buying both low and selling high in the form of puts. Each rally is just an opportunity for shares to be dumped on unsuspected traders. “Smart” money bought 3x the number of puts compared to before the 08 crash at the top of the last rally of hope for a .5 hike followed by a .25 finishing the hikes and decreasing interest rates next year. Since then we have now seen data that absolutely confirms we will be seeing a recession, on a global level. Now that the rest of the market is on the same page, we only have one place to go and that’s down. The Feds not only gave us a .75 basis rate increase but forward projection indicated another .75 followed by a .5 with more to come into 2023. Expectations for 2% are 2025.

Also, why is October and Nov historically bad months?

Monday October 28th 1929, Monday October 19th 1987, Friday October 24th 2008, get ready to add October 2022 to that list….potentially of course….

P.S. a large number of those puts expire Oct 21st, 1 week after dividends, coincidence? One last rally into more puts before the crash is confirmed? I will say, this theory is a bit difficult for me to see because i don’t know how anyone could still be bullish enough to tale this up, oh yea, the algos. Personally, any rally at this point seems like a nice opportunity for an EZ ride down on puts.

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