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Stock market correction gathers steam in Wednesday trading action

Written By | Jan 27, 2021
stock market correction, quadruple witching, Big Bad Bears

Today we offer you a lazy American black bear, a good symbol for recent trading action: down hard with a potential for nastiness. (Image via Wikipedia entry on bears, CC 2.0 license)

WASHINGTON – Wednesday stock markets look pretty sick as we pass the noon hour today. That’s because the stock market correction we briefly spotted Tuesday became quite a bit more obvious Wednesday. Right now, we find stocks in a firm but not yet panicky correction mode mid-day. All three major averages are off more than 1%. The broad-based S&P 500 is off the worst as we write today’s commentary.

Key charts depicted the likelihood of a stock market correction: McClellan Oscillator

My favorite general market indicator, the standard version of the McClellan Oscillator, tracks, with remarkable accuracy, the general movement of markets, both up and down. As it rises ever higher from the zero axis, it becomes increasingly overbought. A drop further and further below the zero line indicates it’s heading for oversold territory. When the indicator hits extreme levels in either direction, we can expect an imminent reversal in the other direction. As Wednesday’s apparent stock market correction gathers steam, it looks like we may be heading toward some kind of bottom.

As you can see in the chart below, Tuesday’s closing McClellan Oscillator chart sharply dropped from an already below-zero level, virtually predicting today’s market nastiness. Once today’s closing chart gets posted, we can expect to see that nasty Tuesday drop augmented considerably.

stock market correction

$NYMOT, the McClellan Oscillator, original version, shows Mr Market embracing a stock market correction.

For volatility, add the latest VIX chart

Unsurprisingly, the continuously updated market volatility measure known as the VIX, remained complacent in recent weeks, which is generally a good thing for investors and a boring thing for traders and option jockeys who need more market volatility to trade in and out of index-based ETFs for profits.




In the VIX chart below, not the big jump in this measure as registered just after the noon hour Wednesday. That’s quite a jump, and indicates markets are beginning to destabilize, at least for the short term. Conservative traders would see this as a “risk-off” indicator. (Today’s charts via StockCharts.com, to which this writer subscribes.)

stock market correction

$VIX, the VIX volatility measure, spikes up as of the noon hour Wednesday. It’s another problem for the bulls.

The trading plot thickens…

Rolling back the clock a bit, Tuesday’s iffy trading action proved far more complicated than what’s normal in 2021. One possible reason: A great many home traders and investors simply couldn’t get online with their brokerage sites. ZeroHedge provided a possible the answer to the issue, via Reuters.

“Reuters reports the massive outage of various web services this morning could be due to a fiber line that was cut in Brooklyn.”

Well, it happens. After getting back online with my brokerage Tuesday after the noon hour ET, things worked more or less okay. Except for that hint that a stock market correction could already be underway.

Today, traders and investors at a number of online brokerage firms are having access issues again, this time due to systems getting overwhelmed by the latest trading craze (see below), leading to trading halts in some stocks and site access times in others. This is also helping Wednesday’s budding stock market correction to worsen, but in an odd way.


Also Read: The cannabis patch: An alternative investment whose time has come?

The Millennials’ “Big Shorts

We can attribute at least some of Wednesday’s confusion to the increasingly irrational herd of millennial trolls. They’ve discovered a brand new and exciting video game. It’s called stock and options trading. Who knew? These newbies, who love their new online video game seem to be driving wild movements in various unloved stocks. Trading in those stocks and in related stock options can make savvy active traders a fortune while making patient investors and short sellers look like gullible fools. Prime Example: the absolutely asinine, wild trading in dying videogame retailer GameStop (NYSE: GME).

The millennial Reddit crowd seems to have joined with the millennial Robinhood crowd in finding and attacking big short positions in select stocks. They do this in various combinations of stock and option purchases involving GameStop. Or, in addition, the more recently fashionable action in the wobbly movie theater company AMC (NYSE: AMC). The latter is in the process of being destroyed by those never-ending coronavirus lockdowns that are killing most local businesses across the country. AMC shares have been dropping like rocks. Or were, until the Kiddie Corps discovered a new game in these shares.

Short analysis: By their mass-purchases of shares and / or options in this pair of badly fading stocks, the trading gangs zero in on identifiable mass short sellers of these stocks – particularly the mass shorting common to a variety of hedge funds. By buying these stocks in mass quantities, the Kiddie Corps drives the price of these shares massively upward. This creates YUGE short-squeezes, forcing the hedgies to dump their positions by buying back the stocks in question. This drives them even higher, which squeezes out even more short sellers, etc., etc. Rinse, repeat.

Big short squeezes mean more market volatility. Not to mention Washington’s insane business-unfriendly policies

I’ll have more to say on this short squeeze nonsense in an upcoming column. Suffice it to say right now that this increasingly massive “squeeze the shorts” game is yet another reason why markets and the VIX are experiencing brief but disabling strokes.

Yet we can infer that much of the market’s current confusion actually stems from the sheer market malaise now that we don’t have President Trump to kick around any more (except for Nancy and Chucky). But I’m not sure if traders and investors, who largely hated Trump while loving his policies, have grasped the revival of Barack Obama’s “fundamental transformation” of the US into a Third World has-been of a socialist country in the nation’s militarized capital city.



Example: the Biden administration, currently doing business as (DBA) Joe Biden, has moved quickly and strongly to eliminate between 4,000 and 7,000 jobs in the oil industry by once again denying the ability of big and little oil to extract fossil fuel resourced on government lands.

In addition to this affront to common sense, a great many of these jobs will now get phased out in southeastern New Mexico – where the state had counted on the Permian Basin boom to fund a vast array of social programs and education in this perpetually impoverished state.

Making Canadians unhappy. Great move! Enter Warren Buffett

Even worse, from an international standpoint, is the fact that the Administration’s effective cancelation of the Keystone XL pipeline project – painfully preserved and set into motion by the Trump administration after years and years of enviro-freak stonewalling – will likely throw upwards of 40,000 Canadians in Alberta and Saskatchewan out of work as well, putting the governments of those provinces into a high dudgeon.

It’s all for the environment, of course. But who it’s really for is Uncle Warren Buffett, a monstrously big supporter of the Democrat Party since heaven knows when. No Keystone XL pipeline means that Uncle Warren’s pet railroad, Burlington Northern Santa Fe, gets to haul nearly all that Canadian oil. And likely, quite a lot from America’s essentially contiguous Bakken Shale oilfields. No quid pro quo, of course. Nothing to see here, folks, move along. But don’t think this is all about global warming climate change.

Unions screw their own members by donating to Democrats. Who then kill union jobs

Actually, the most vexatious thing involved in this latest anti-fossil fuel action is the fact that the union representing American pipeline workers gave early and often to the Biden campaign last year. Now, their reward is this massive loss of union jobs.

One wonders when unions are going to wake up when it comes to their willfully blind support of the Democrat candidates who, having won their elections, largely courtesy of massive union contributions and PACs, turn right around and screw the unions whose campaign money put those always-Democrat pols over the top. No hugging, no learning here. But that’s a topic that needs its own column.

Moving right along, what’s the deal with China?

Meanwhile, as we conclude today’s article, Wall Street still looks like it’s in stock market correction mode after hitting new all-time highs late last week. Industrials, Materials and at least a few big banks continue to struggle. That’s true even though the post-pandemic economy, if it ever comes back to life, will show its first real signs of vigor in these industries.

China, whose economy no doubt remains considerably weaker than the CCP claims, continues to flounder, stock-wise. GXC, the SPDR S&P China ETF (NYSE Arca: GXC) that represents most of that country’s bigger companies, is losing altitude today for the third day in a row. Could it be that the Chinese government’s complete erasure from the media of their own coronavirus problem is actually the biggest fake news story of all time? Do we really believe that the country has completely recovered from the pandemic it arguably caused? But looking at the media for answers results in nothing but * crickets *.

On the other hand, our own coronavirus problem is possibly at an end. The simple political reason? Joe Biden is now America’s un-President. Ergo, we no longer need a coronavirus problem, since the media largely pumped it up anyway. They needed to add yet another contributing negative factor to justify President Trump’s pre-Election 2020 skunking at the polls.

Life in these United (?) States

Life in general in these United States has become essentially fake as well. You can rationally believe little if anything today, particularly if it’s the latest hot lie the media’s pitching. Perhaps Mr Market reflects this.

As for today, I’m bored and I’m signing out. But I’m also watching very carefully for a very big market correction that can happen at almost any time now. The insane action in GameStop shares is only the beginning. Which makes me very nervous and watchful. You should be feeling the same. We all need to plan an exit strategy if today’s nasty market slide worsens as the week progresses. Like SNL’s Rosanne Roseannadanna used to say: “It’s always something.”

– Headline image: Today we offer you a lazy American black bear, a good symbol for recent trading action: down hard with a potential for nastiness. (Image via Wikipedia entry on bears, CC 2.0 license)

 

Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17