Transcript:
Tom Vaughan:
Hello, everybody, welcome to Tuesday, the S&P 500 had a great green shirt day today up almost two and a half percent. I saw three main catalysts for why today worked out so well. Number one is the market was stretched so far to the downside over the last couple of weeks, I like to use the rubber band analogy where you when you pull down in a rubber band and pull and pull and pull the pressure to come back up, it gets higher and higher, the more you come down, and you get kind of a pop to the upside. The second thing that I saw happen was that they do surveys for individuals and professional investors, where they’re trying to find out what they feel about the future for the stock market. So, you know, do you think the market is going to be up in six months or down? Well, the number of people answering down is at a near record high. And so if you think about it, a lot of those people probably already did something there maybe the reason we’re down so much the last couple of weeks, they’ve sold out, and it just leaves those people smaller group but powerful group because there’s nobody else left to come in and buy and the sellers have already sold and you get this pop and move motion upward. Uh, probably the most important catalyst though today is really, in my opinion, the number of shares that are being shorted on the stock market. So hedge funds specifically are shorting individual stocks and Exchange Traded Funds at the highest level we’ve seen since 2008. And when that happens, when you get some motion upward, those funds have to buy back that stock to cover potential losses.
Of course, when they’re buying back that stock, they’re making the market go even higher. And so if I was to make a an anatomy of a recovery, kind of on average from a place like we are now that’s exactly what you’d end up with some negativity that gets so high, you get some pop, creating some coverage of shorts, you get more coverage of shorts over subsequent days, then the individual investor gets involved, you know, doesn’t want to miss out on the run upward. And eventually, the institutional managers start to get involved. And right now they’re sitting on a lot of cash. They’ve had, you know, huge amounts of cash right now. And we’ve got this scenario where boom, all of a sudden, you get back to where you are. We’ve had all of those happen in the run ups that we’ve had so far this year, except for that last part and the institutional best are really coming back in, in my opinion. And so what we’re looking at here, I think is the institutional investors looking at the Federal Reserve, and really doesn’t, they don’t want to fight the Fed. So the Fed is raising rates and aggressively trying to fight inflation. You want to sit out until maybe we see the Fed starts to at least, you know, soften their tone and maybe even start to support the economy on the other side. So, you know, it’s going to be interesting to see how this particular day turns into what type of run up and how far it goes. So I look forward to talking to you tomorrow. Thank you very much.