Yesterday, shares of AMC and GME simply dumped. No, these are not the most important charts or stocks in the market, but it is worth taking note of this as this year began with a lot of excitement about these stocks and a short squeeze in them. For a few days the notion that the small fry Robinhood traders could destroy hedge funds by generating short squeezes circulated everywhere on the internet and even on to the Tucker Carlson and Rachel Maddow shows, but this breakdown in the stocks shows that the year is coming to a close with the small traders who have been holding it now set up to suffer.
Both GME and AMC fell hard through their summers low.
The fact is MANY stocks in the market that were popular earlier this year or last year are broken and fading while the S&P 500 still looks ok at a superficial glance.
Here is the most important chart in the market. It is the percentage of stocks above their 200-day moving average on the NYSE.
This indicator completely plunged last month. It has been in a steady decline since June.
When this indicator goes down it means that many stocks are falling below their 200-day moving averages and are in bear markets of their own.
This indicator fades like this during a stage three top in the markets that leads to a bear market.
For example, it did this back in August of 2007.
You won’t see this chart if you load up a Robinhood app even though it is showing us the most important thing that has happened in the markets in the six weeks. It’s a red flag signal of caution, but the real problem isn’t that Robinhood doesn’t show it to people, but that the masses of Robinhood traders don’t want to hear about it. And it isn’t only them. Traders came into November holding record stock market margin debt too. When market internals decline it means a bear market is on the horizon. People need to be taking on less risk, but instead they have taken on about as much as they can possibly can. When everyone is all-in, watch out. You already are seeing the crypo market deflate again after Bitcoin broke down last month too.
-Mike
