Transcript
Well, hello, everybody. Welcome to Wednesday, unfortunately, today’s a redshirt day, the S&P 500 was down almost 2.6%. Today, there’s a couple of catalysts that are being blamed for today. One is this situation that happened with GameStop. And actually quite a few other stocks. Now, the concept is you would find a smaller company, this wouldn’t work for Apple, but something like GameStop, who has a lot of people that are doing what’s called short interest or trying to short that stock. So just to quickly explain if I want to short a stock, let’s say at $10. And I do 100 shares. And so I’m going to basically take that stock, I’m going to borrow it from from a brokerage firm, I’m going to sell it at $10. Right away, my hope is it drops to $7, you know, and that takes $700, buy back the stock, give it back, I keep the $300 profit? Well, the problem is if that stock goes up, it can go up forever. So if it goes up to say, $13, right, I have to pay $1300 to buy back those 100 shares. And all of a sudden, I’m out $300. Well, what if it goes to $100? I’m out, you know, $9,000.
And so what’s happening is that these small investors are getting together, and they’re running in to buy the stock and buying call options and doing all these things to drive that price up. And they’re making sort of a panic situation with this high number of short sellers in each one of these stocks. And they’re having to buy back that stock at a higher price, because they have an unlimited risk. And of course, a lot of times they use leverage too. So they’ve got to pay that off. And they they’re losing money. And so it’s not just you know, GameStop its AMC theaters, its Bed, Bath and Beyond. It’s all these companies that are struggling during the Coronavirus that are small enough so that a small group could come in and run that stock up. Again, this wouldn’t work for something like Apple, there’s just too many shares outstanding. And so now you’ve got these companies running around with these big losses that they have to cover. And oftentimes it means they have to sell other stocks to cover that. And so we ended up with this, you know, downturn.
The other piece that’s getting blamed is the Federal Reserve, you know, spoke today, Chairman Powell and talked about how, you know, the virus is affecting the economy, Hey, he’s been saying that quite often, that’s really just code for asking the Congress to continue to put out stimulus because of what they’re seeing. So every time he’s spoken lately, he has said that, and we’ve had downturns on those days, every time, I still say it’s kind of ironic that he was saying exactly the opposite things about how great things were when the market was falling apart. So when the market gets high, I think they feel more confident that they can say some things. But I have another theory too. And I think this is important, let me share my screen. And that is, we just had a fantastic run here back in, you know, October 30th. This was just an unbelievable movement here. And so we end up with this downturn that we have here. I look at it like a rubber band, if you have a rubber band, you know, in one hand here, and you take your other hand and you stretch it, you know, the more you move, the more tension there is to move back down. Now you can stretch it and stretch and stretch it potentially. But it does become more likely that you’re going to have a little snap back because the tension’s there as far as that goes. And so you know what’s happened so far today, we kind of broke through this little, you know, support level that we were talking about a couple of days ago, our next support level is right here.
I would actually very much so assume we’re going to come down to this level here. Without any question, in my in my opinion. And one of the things that does happen and downturns is sort of like having a wound on your leg, it’s very hard to run, you have to heal. And so you see here, you know, big downturn, it didn’t just turn right around, it had to heal. And so we had the same thing here, you have to get this kind of big downturn day, and eventually find some bottom and some time for to heal. So sometimes it goes sideways, like what you see here, we saw a big down day, and we had a sideways movement. And but we had the same thing. Look, I mean, here, it was low, and we had this huge run, stretching the rubber band really, really far and snapped back. Alright, now, taking into account the fact that from the bottom here to where we are right now is one of the greatest recoveries in the history of the stock market. We still have all kinds of examples where it went backwards. And so the one thing that’s really hard for people to understand is that when you’re in an upward market, you do get downturns. And the worry, of course is does it turn into a big one like this?
Well, the first assumption you have to make is that when we’re in an upturn, so for in this case, the 20-day moving average is going up, the 50-day’s up the 100’s up and the 200’s up. So that’s an upward moving market. They have to assume that the downturns that are happening until otherwise proven, are just pullbacks in the middle of an upward market, like we saw multiple times here in this great move altogether. And you can kind of tell when things start to curl over, you get the 20, the 50, the 100-day all starting down. And you can tell here, you know, by the 100-day moving down, especially, we’re in a downward market crosses through the 200-day moving average, there’s all kinds of signs of downward market, we’re not anywhere close to those. So the assumption at the moment has to be that this is a downturn inside of a big upturn, we’ve got low interest rates, we’ve got a vaccine that seems to be working at least somewhat, that has potential to work even better as they get it distributed. And we’ve got this potential to get this pent up, demand out, et cetera, et cetera, et cetera.
So, I think, you know, we could see some pain here, that’s kind of part of the normal process, I don’t think it’s a bad thing. Just keep in mind that this type of movement down creates cheaper shares that start to attract money. And again, you’re not making anything anywhere else. And so that money starts to come in, and we get this big run up. So altogether, you know, today’s kind of a, an important day, but not a big day, it really doesn’t make that much difference. As far as what’s happening. It’s something that, you know, we kind of have to be aware of, it is why I’ve been putting in stop losses again, you know, you take that rubber band, stretch, stretch, stretch, stretch, and I see those big stretches, you know, I want to put a little Stop Loss in there, nothing was triggered today. We don’t put Stop Losses really close. That’s not the objective here. It’s more for that, you know, continued you know, bigger erosion, where we start to see maybe that big down upturn really is turning into a true downturn, and that’s when we kind of want those Stop Losses to trigger. So I think, you know, that’s why we placed them. They’re there. And it’s important to have them there. And I like having them there. But so that’s what’s happened today. It’s been a really interesting day. It’s an interesting time period. Let’s see what happens tomorrow. All right. Thank you very much.