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Global overview of the markets and hedge from the risks of a financial bubble

by Thomas
Global overview of the markets and hedge from the risks of a financial bubble

The signs of recovery (Bloomberg data) are starting to show, the retail sales data was up 29% so it means that the fiscal stimulus (in the US in particular) is working and consumers are pushing on the lever of purchases. Also due to the increase in the number of vaccinated.

What types of purchase? Food and beverage in the first place especially restaurants or fast food that do delivery but also the construction sector is growing. Many people are renovating their homes ( look graphic of Homedepot) while others buy clothing, let’s not forget that retail investors have resumed loading rifles with Robinhood/Etoro-style social trading (check the volumes exchanged).

I want to emphasize that mine not only the classic technical analyses but I use volumes, open interest and options (sometimes cycles to have information about the times and not the prices).

Major indices continue to make new highs and don’t seem to want to calm down, S&P 500 weekly chart there are important levels of support 4120 and 4068, so at breaking these levels particularly in the second there could be a sell off.

On the Nasdaq I identified 2 important levels of support at 13791 and 13733 while a resistance to 13983 for which it will take a lot of money to be violated upwards. For the Dax (German index) I have identified a robust support area at 15250 (weekly chart), so at the moment there are no signs of a financial bubble bursting.

But how long can this calm situation last? How long will central banks drug markets all right, but then are we so sure that a financial bubble can’t burst any minute?

Since (I think) a financial bubble can burst when people least expect it, I take the risk with options, never as last week did I see that coverage options cost so little.

I would remind you that the huge demand for hedges pushes up the price, very often investors cover themselves on nearby maturities and not on distant maturities because, for example, it costs less to spend 50 points with a one-week option than 700 to 6 months.

I do not want to condition my readers with the fear of a financial bubble but simply to emphasize the paradoxical situation that the financial markets are experiencing, think that at every negative event (Suez Channel) the world stock exchanges instead of going down maybe lose something but immediately after they recover without any kind of impact.

And the SPAC boom (300 since the beginning of 2021) or vehicle companies intended to raise large risk capital through an IPO (initial public offering), in your opinion, could not ultimately pose an additional risk to a financial bubble?

What is the Security Exchange Commission doing? Perhaps for a few weeks they have been starting to promulgate reforms to regulate this phenomenon, should they not “perhaps” control the conflicts of interest that there are between high finance (business banks and brokers) and “influencer” characters?

As a final topic I want to talk about ETFs that are considered by many people to be investment medicine, I do not agree very much and I want to say why.

ETFs behave a little bit particularly and maybe not everyone knows how it works, when you see an Etf go up it means that stocks go up because they have characteristics that align with rules dictated by who creates the product.

Managers such as Blackrock, Vanguard… they create packages where they incorporate shares in companies with no choice, such as the Technology Etf or telecommunications, but the most important thing is how these companies are weighed inside the box?

Not everyone knows this but it is the law of market capitalization, so those who have a greater weight drive everyone else (Amazon, Facebook, Google, Microsoft, Netflix) are to give a few examples.

If I were you I would pay close attention to the use of ETFs because they can be a leverage factor for a financial bubble in the future, the only thing I can say is to cover portfolios with options since they now cost little.

In the future I will create an area where I will give free signals about my operation.

I point out stocks to note that have had a strong momentum, they are companies working in the lithium mining sector interesting for the production of batteries for electric vehicles : Orocobre / Galaxy Resources Limited

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