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April 2, 2017 | What a Financial Panic Might Look Like

Rick Ackerman

Rick Ackerman is the editor of Rick’s Picks, an online service geared to traders of stocks, options, index futures and commodities. His detailed trading strategies have appeared since the early 1990s in Black Box Forecasts, a newsletter he founded that originally was geared to professional option traders. Barron’s once labeled him an “intrepid trader” in a headline that alluded to his key role in solving a notorious pill-tampering case. He received a $200,000 reward when a conviction resulted, and the story was retold on TV’s FBI: The Untold Story. His professional background includes 12 years as a market maker in the pits of the Pacific Coast Exchange, three as an investigator with renowned San Francisco private eye Hal Lipset, seven as a reporter and newspaper editor, three as a columnist for the Sunday San Francisco Examiner, and two decades as a contributor to publications ranging from Barron’s to The Antiquarian Bookman to Fleet Street Letter and Utne Reader.

Stocks ended the week looking tired, but we’ve learned over the course of this bull market, now in its ninth year, that no matter how burned out the buyers seem on a given day, there will always be short-covering bears to rescue them in their hour of need. In statistical fact, a steep, day-long sell-off has all but guaranteed a short-covering panic whenever the selling has continued into a second day. The squeeze is easily triggered by DaBoyz, who simply pull their bids overnight so that stocks can fall far enough to exhaust sellers. They don’t have to buy much stock on the way down as they ratchet their bids lower, and that’s why being downhill of an avalanche holds relatively little risk for them. One might get the impression that this rigged game could continue more or less forever. It won’t, though. At some point the Masters of the Universe will fade sellers on a day when there are vast legions more of them waiting in the wings to dump stock. The algos will sniff this out in an instant, and their response will turn an avalanche into something that will feel, at least for a few hours, like Armageddon. The exchanges will throw their circuit breakers, but that won’t help if the panic has spread to the streets. The Fed has circuit breakers of its own, but the bankers face Catch-22 jeopardy using them, since shutting down the banks even for a day, if unexpected, will have the opposite effect of calming the herd. Depositors will need a shoebox full of $1s, $5s, $10s, $20s, $50s and $100s when that day comes, since ‘plastic’ will buy nothing and bullion will have no clear value, at least initially

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April 2nd, 2017

Posted In: Rick's Picks

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